Bond prices depend on the market rate of interest, stated rate of interest, and time.
1. Compute the price of the following 8% bonds of Country Telecom.
a. $100,000 issued at 75.25
b. $100,000 issued at 103.50
c. $100,000 issued at 94.50
d. $100,000 issued at 103.25
2. Which bond will Country Telecom have to pay the most to retire at maturity? Explain your answer.
(a) $75,250 (b) $103,500 (c) $94,500 (d) $103,250
Bonds are the loans issued by the company to the investors on which regular interest payment are made by the company.
a. In this case, the bonds are issued at a discount
b. In this case, the bonds are issued at a premium
c. In this case, the bonds are issued at a discount
d. In this case, the bonds are issued at a premium
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.
Using the effective-interest amortization method
On December 31, 2018, when the market interest rate is 8%, Biggs Realty issues
$450,000 of 5.25%, 10-year bonds payable. The bonds pay interest semiannually. The
present value of the bonds at issuance is $365,732.
1. Prepare an amortization table using the effective interest amortization method for
the first two semiannual interest periods. (Round to the nearest dollar.)
2. Using the amortization table prepared in Requirement 1, journalize issuance of the
bonds and the first two interest payments.
Journalizing bond transactions including retirement at maturity
McQueen Company issued a $100,000, 7.5%, 10-year bond payable. Journalize
transactions for McQueen Company, and include an explanation for each
a. Issuance of the bond payable at face value on January 1, 2018.
b. Payment of semiannual cash interest on July 1, 2018.
c. Payment of the bond payable at maturity, assuming the last interest
already been recorded. (Give the date.)
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.
Accounting for mortgages payable
Ember Company purchased a building with a market value of $280,000 and land with
a market value of $55,000 on January 1, 2018. Ember Company paid $15,000 cash and
signed a 25-year, 12% mortgage payable for the balance.
1. Journalize the January 1, 2018, purchase.
2. Journalize the first monthly payment of $3,370 on January 31, 2018. (Round to the
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