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Q37PGA_3

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Horngren'S Financial And Managerial Accounting
Found in: Page 664

Short Answer

Determining the present value of bonds payable and journalizing using the effective-interest amortization method Brad Nelson, Inc. issued $600,000 of 7%, six-year bonds payable on January 1, 2018.

The market interest rate at the date of issuance was 6%, and the bonds pay interest semiannually.

Learning Objectives 2, 3, 4

3. June 30, 2018, Interest Expense $25,200

Learning Objectives 2, 3, 4

June 30, 2018, Interest Expense $37,750

C H A P T E R 1 2

Requirements

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 and second payments of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.

The carrying amount of the bonds on December 31, 2018, is $611,046.20

See the step by step solution

Step by Step Solution

Step 1: Definition of present value

The present value means the current worth of the money in present for the amount which will collected in future.

Step 2: Journal entries

Date

Particulars

Debit

Credit

January 1, 2018

Cash

$611,862

Premium on Bonds

$11,000

Bonds Payable

$600,000

(Being entry for the issue of the bonds)

June 30, 2018

Interest Expense

$21,000

Premium on bonds

$415.17

Cash

$21,415.17

(Being entry for the payment of interest)

December 31, 2018

Interest Expense

$21,000

Discount on Bonds

$400.63

Cash

$21,400.63

(Being entry for the payment of interest)

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