Romero issues $3,400,000 of 10%, 10-year bonds dated January 1, 2017, that pay i
ID: 2603395 • Letter: R
Question
Romero issues $3,400,000 of 10%, 10-year bonds dated January 1, 2017, that pay interest semiannual! y on June 30 and December 31. The bonds are issued at a price of $3,010,000. Required 1. Prepare the January 1, 2017, journal entry to record the bonds' issuance miannual period, compute (a) the cash payment, () the straight-line discount amortization, and (c) the bond interest expense. 3. Determine the total bond interest expense to be recognized over the bonds' life. 4. Prepare the first two years of an amortization table like Exhibit 14.7 using the straight-line method. 5. Prepare the journal entries to record the first two interest payments. Refer to the bond details in Problem 14-2B, except assume that the bonds are issued at a price of $4,192,932 Required 1. Prepare the January 1, 2017, journal entry to record the bonds' issuance. 2. For each semiannual period, compute (a) the cash payment, (b) the straight-line premium amortiza tion, and (c) the bond interest expense 3. Determine the total bond interest expense to be recognized over the bonds' life. 4. Prepare the first two years of an amortization table like Exhibit 14.11 using the straight-line method. 5. Prepare the journal entries to record the first two interest payments.Explanation / Answer
Part 1
2017
Jan. 1
Cash.....................................................................
4,192,932
Premium on Bonds Payable...........................
792,932
Bonds Payable................................................
3,400,000
Sold bonds on issue date at a premium.
Part 2
(a) Cash Payment = $3,400,000 x 10% x 6/12 year = $170,000
(b) Premium = $4,192,932 - $3,400,000 = $792,932
Straight-line premium amortization= $792,932/20 semiannual periods
= $ 39,647 rounded
(c) Bond interest expense = $170,000 - $39,647 = $130,353
Part 3
Twenty payments of $170,000..........
$3,400,000
Par value at maturity........................
3,400,000
Total repaid......................................
6,800,000
Less amount borrowed....................
(4,192,932)
Total bond interest expense............
$2,607,068
or:
Twenty payments of $170,000..........
$3,400,000
Less premium..................................
(792,932)
Total bond interest expense............
$2,607,068
Part 4
Semiannual
Period-End
Unamortized
Premium
Carrying
Value
1/01/2017...........
$792,932
$4,192,932
6/30/2017...........
753,285
4,153,285
12/31/2017...........
713,638
4,113,638
6/30/2018...........
673,991
4,073,991
12/31/2018...........
634,344
4,034,344
Part 5
2017
June 30
Bond Interest Expense................................... .......................................................................
130,353
Premium on Bonds Payable...........................
39,647
Cash.........................................................
170,000
To record six months’ interest and
premium amortization.
2017
Dec. 31
Bond Interest Expense...................................
130,353
Premium on Bonds Payable...........................
39,647
Cash.........................................................
170,000
To record six months’ interest and
premium amortization.
Jan. 1
Cash.....................................................................
4,192,932
Premium on Bonds Payable...........................
792,932
Bonds Payable................................................
3,400,000
Sold bonds on issue date at a premium.
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