Journalizing bond issuance and interest payments
On June 30, Parker Company issued 11%, five-year bonds payable with a face value
of $120,000. The bonds are issued at face value and pay interest on June 30 and
1. Journalize the issuance of the bonds on June 30.
2. Journalize the semiannual interest payment on December 31
The interest expense account is debited with $6,600 and the cash account is credited with $6,600.
The bond is a type of long-term liability that the company issues to complete the need for a large amount of money.
(Entry for the payment of interest)
Analyzing, journalizing, and reporting bond transactions
Johnny’s Hamburgers issued 8%, 10-year bonds payable at 85 on December 31, 2018.
At December 31, 2020, Johnny reported the bonds payable as follows:
Bonds Payable $ 300,000
Less: Discount on Bonds Payable (36,000) $ 264,000
Johnny pays semiannual interest each June 30 and December 31.
1. Answer the following questions about Johnny’s bonds payable:
a. What is the maturity value of the bonds?
b. What is the carrying amount of the bonds at December 31, 2020?
c. What is the semiannual cash interest payment on the bonds?
d. How much interest expense should the company record each year?
2. Record the June 30, 2020, semiannual interest payment and amortization of discount.
Preparing an amortization schedule and recording mortgages payable
Kellerman Company purchased a building and land with a fair market value of
$550,000 (building, $425,000, and land, $125,000) on January 1, 2018. Kellerman
signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of
$3,940.37. Round to two decimal places. Explanations are not required for journal
1. Journalize the mortgage payable issuance on January 1, 2018.
2. Prepare an amortization schedule for the first two payments.
3. Journalize the first payment on January 31, 2018.
4. Journalize the second payment on February 28, 2018.
Retiring bonds payable before maturity
On January 1, 2018, Powell Company issued $350,000 of 10%, five-year bonds
at 102. Powell Company has extra cash and wishes to retire the bonds payable
January 1, 2019, immediately after making the second semiannual interest
retire the bonds, Powell Company pays the market price of 98.
1. What is Powell Company’s carrying amount of the bonds payable on the
2. How much cash must Powell Company pay to retire the bonds payable?
3. Compute Powell Company’s gain or loss on the retirement of the bonds
Determining the present value of bonds payable and journalizing using the effective-interest amortization method
Ari Goldstein issued $300,000 of 11%, five-year bonds payable on January 1, 2018. The market interest rate at the date of issuance was 10%, and the bonds pay interest semiannually.
1. How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.)
2. Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments. (Round to the nearest dollar.)
3. Journalize the issuance of the bonds on January 1, 2018, and the first second payments of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.
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