Hartford research issues bonds dated january 1

Exercise 10-4 Straight-line amortization of bond premium L.O. P3

Prairie Dunes Co. issues bonds dated January 1, 2011, with a par value of $890,000. The bonds’ annual contract rate is 12%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 10%, and the bonds are sold for $935,160.

1.

What is the amount of the premium on these bonds at issuance? (Omit the "$" sign in your response.)

Premium

$ image1.wmf

2.

How much total bond interest expense will be recognized over the life of these bonds? (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Total bond interest expense

$ image2.wmf

3.

Prepare an amortization table for these bonds; use the straight-line method to amortize the premium.(Make sure that the unamortized premium is adjusted to "0" and the carrying value equals to face value of the bond in the last period. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Semiannual Interest Period-End

Unamortized Premium

Carrying Value

1/01/2011

$ image3.wmf

$ image4.wmf

6/30/2011

image5.wmf

image6.wmf

12/31/2011

image7.wmf

image8.wmf

6/30/2012

image9.wmf

image10.wmf

12/31/2012

image11.wmf

image12.wmf

6/30/2013

image13.wmf

image14.wmf

12/31/2013

image15.wmf

image16.wmf

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Exercise 10-3B Effective interest amortization of bond discount L.O. P2

Welch issues bonds dated January 1, 2011, with a par value of $249,000. The bonds’ annual contract rate is 10%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold for $236,765.

1.

What is the amount of the discount on these bonds at issuance? (Omit the "$" sign in your response.)

Discount

$ image17.wmf

2.

How much total bond interest expense will be recognized over the life of these bonds? (Omit the "$" sign in your response.)

Total bond interest expense

$ image18.wmf

3.

Use the effective interest method to amortize the discount for these bonds. (Make sure that the unamortized discount equals to "0" and the Carrying value equals to face value of the bond in the last period. Bond interest expense in the last period should be calculated as Cash interest paid (+) Discount amortized. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Semiannual Interest Period-End

(A) Cash Interest Paid

(B) Bond Interest Expense

(C) Discount Amortization

(D) Unamortized Discount

(E) Carrying Value

1/01/2011

$ image19.wmf

$ image20.wmf

6/30/2011

$ image21.wmf

$ image22.wmf

$ image23.wmf

image24.wmf

image25.wmf

12/31/2011

image26.wmf

image27.wmf

image28.wmf

image29.wmf

image30.wmf

6/30/2012

image31.wmf

image32.wmf

image33.wmf

image34.wmf

image35.wmf

12/31/2012

image36.wmf

image37.wmf

image38.wmf

image39.wmf

image40.wmf

6/30/2013

image41.wmf

image42.wmf

image43.wmf

image44.wmf

image45.wmf

12/31/2013

image46.wmf

image47.wmf

image48.wmf

image49.wmf

image50.wmf

Total

$ image51.wmf

$ image52.wmf

$ image53.wmf

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Exercise 10-9 Computing bond interest and price; recording bond issuance L.O. P2

Jester Company issues bonds with a par value of $590,000 on their stated issue date. The bonds mature in 5 years and pay 9% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 12%. (Use Table B.1, Table B.3)

1.

What is the amount of each semiannual interest payment for these bonds? (Omit the "$" sign in your response.)

Semiannual interest payment

$ image54.wmf

2.

How many semiannual interest payments will be made on these bonds over their life?

Number of payments

image55.wmf

3.

Use the interest rates given to select whether the bonds are issued at par, at a discount, or at a premium.

image56.wmf

at a premium.

image57.wmf

at par.

image58.wmf

at a discount.

4.

Compute the price of the bonds as of their issue date. (Round "PV Factors" to 4 decimal places. Round intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Issue price of bonds

$ image59.wmf

5.

Prepare the journal entry to record the bonds’ issuance. (Round "PV Factors" to 4 decimal places. Round intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

General Journal

Debit

Credit

image60.wmf

image61.wmf

image62.wmf

image63.wmf

image64.wmf

(Click to select)

image65.wmf

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Exercise 10-5B Effective interest amortization of bond premium L.O. P3

Prairie Dunes Co. issues bonds dated January 1, 2011, with a par value of $740,000. The bonds’ annual contract rate is 13%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold for $758,222.

Prepare an amortization table for these bonds using the effective interest method to amortize the premium.(Make sure that the unamortized premium equals to '0' and the Carrying value equals to face value of the bond in the last period. Bond interest expense in the last period should be calculated as Cash interest paid (−) Premium amortized. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Semiannual Interest Period-End

(A) Cash Interest Paid

(B) Bond Interest Expense

(C) Premium Amortization

(D) Unamortized Premium

(E) Carrying Value

1/01/2011

$ image66.wmf

$ image67.wmf

6/30/2011

$ image68.wmf

$ image69.wmf

$ image70.wmf

image71.wmf

image72.wmf

12/31/2011

image73.wmf

image74.wmf

image75.wmf

image76.wmf

image77.wmf

6/30/2012

image78.wmf

image79.wmf

image80.wmf

image81.wmf

image82.wmf

12/31/2012

image83.wmf

image84.wmf

image85.wmf

image86.wmf

image87.wmf

6/30/2013

image88.wmf

image89.wmf

image90.wmf

image91.wmf

image92.wmf

12/31/2013

image93.wmf

image94.wmf

image95.wmf

image96.wmf

image97.wmf

Total

$ image98.wmf

$ image99.wmf

$ image100.wmf

Exercise 10-1 Recording bond issuance and interest L.O. P1

On January 1, 2011, Kidman Enterprises issues bonds that have a $1,300,000 par value, mature in 20 years, and pay 7% interest semiannually on June 30 and December 31. The bonds are sold at par.

1.

How much interest will Kidman pay (in cash) to the bondholders every six months? (Do not round intermediate calculations. Omit the "$" sign in your response.)

Semiannual cash interest payment

$ image101.wmf

2.

Prepare journal entries for the following.

(a)

The issuance of bonds on January 1, 2011. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Jan. 1, 2011

image102.wmf

(Click to select)

image103.wmf

image104.wmf

(Click to select)

image105.wmf

(b)

The first interest payment on June 30, 2011. (Do not round intermediate calculations. Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

June 30, 2011

image106.wmf

(Click to select)

image107.wmf

image108.wmf

(Click to select)

image109.wmf

(c)

The second interest payment on December 31, 2011. (Do not round intermediate calculations. Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Dec. 31, 2011

image110.wmf

(Click to select)

image111.wmf

image112.wmf

(Click to select)

image113.wmf

3.

Prepare the journal entry for issuance of bonds assuming.

(a)

The bonds are issued at 96. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Jan. 1, 2011

image114.wmf

image115.wmf

image116.wmf

image117.wmf

image118.wmf

(Click to select)

image119.wmf

(b)

The bonds are issued at 104. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Jan. 1, 2011

image120.wmf

(Click to select)

image121.wmf

image122.wmf

image123.wmf

image124.wmf

image125.wmf

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Exercise 10-15 Installment note entries L.O. P5

On January 1, 2011, Randa borrows $21,000 cash by signing a four-year, 5% installment note. The note requires four equal total payments of accrued interest and principal on December 31 of each year from 2011 through 2014. (Use Table B.3)

Prepare the journal entries for Randa to record the loan on January 1, 2011, and the four payments from December 31, 2011, through December 31, 2014. (Round "PV Factor" to 4 decimal places and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Jan. 1, 2011

image126.wmf

(Click to select)

image127.wmf

image128.wmf

(Click to select)

image129.wmf

Dec. 31, 2011

image130.wmf

image131.wmf

image132.wmf

image133.wmf

image134.wmf

(Click to select)

image135.wmf

Dec. 31, 2012

image136.wmf

image137.wmf

image138.wmf

image139.wmf

image140.wmf

(Click to select)

image141.wmf

Dec. 31, 2013

image142.wmf

image143.wmf

image144.wmf

image145.wmf

image146.wmf

(Click to select)

image147.wmf

Dec. 31, 2014

image148.wmf

image149.wmf

image150.wmf

image151.wmf

image152.wmf

(Click to select)

image153.wmf

Problem 10-1A Computing bond price and recording issuance L.O. P1, P2, P3

Stowers Research issues bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds have a $30,000 par value and an annual contract rate of 10%, and they mature in 10 years.

Required:

Consider each of the following three separate situations. (Use Table B.1, Table B.3)

1.

The market rate at the date of issuance is 8%.

(a)

Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Issue price

$ image154.wmf

(b)

Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Jan. 1

image155.wmf

(Click to select)

image156.wmf

image157.wmf

image158.wmf

image159.wmf

image160.wmf

2.

The market rate at the date of issuance is 10%.

(a)

Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Issue price

$ image161.wmf

(b)

Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Jan. 1

image162.wmf

(Click to select)

image163.wmf

image164.wmf

(Click to select)

image165.wmf

3.

The market rate at the date of issuance is 12%.

(a)

Determine the bonds' issue price on January 1, 2011. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Issue price

$ image166.wmf

(b)

Prepare the journal entry to record their issuance. (Round "PV Factors" to 4 decimal places, intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Jan. 1

image167.wmf

image168.wmf

image169.wmf

image170.wmf

image171.wmf

(Click to select)

image172.wmf

Problem 10-2A Straight-line amortization of bond discount L.O. P1, P2

Heathrow issues $1,600,000 of 9%, 15-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,382,579.

Required:

1.

Prepare the January 1, 2011, journal entry to record the bonds’ issuance. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Jan. 1

image173.wmf

image174.wmf

image175.wmf

image176.wmf

image177.wmf

(Click to select)

image178.wmf

2(a)

For each semiannual period, compute the cash payment. (Omit the "$" sign in your response.)

Cash payment

$ image179.wmf

2(b)

For each semiannual period, compute the the straight-line discount amortization. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Amount of discount amortization

$ image180.wmf

2(c)

For each semiannual period, compute the bond interest expense. (Round your intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Bond interest expense

$ image181.wmf

3.

Determine the total bond interest expense to be recognized over the bonds' life. (Omit the "$" sign in your response.)

Total bond interest expense

$ image182.wmf

4.

Prepare the first two years of an amortization table using the straight-line method. (Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response. Omit the "$" sign in your response.)

Semiannual Period-End

Unamortized Discount

Carrying Value

1/01/2011

$ image183.wmf

$ image184.wmf

6/30/2011

image185.wmf

image186.wmf

12/31/2011

image187.wmf

image188.wmf

6/30/2012

image189.wmf

image190.wmf

12/31/2012

image191.wmf

image192.wmf

5.

Prepare the journal entries to record the first two interest payments. (Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

June 30

image193.wmf

(Click to select)

image194.wmf

image195.wmf

image196.wmf

image197.wmf

image198.wmf

Dec. 31

image199.wmf

(Click to select)

image200.wmf

image201.wmf

image202.wmf

image203.wmf

image204.wmf

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Problem 10-3A Straight-line amortization of bond premium L.O. P1, P3

Heathrow issues $1,900,000 of 5%, 15-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $2,325,594.

Required:

1.

Prepare the January 1, 2011, journal entry to record the bonds’ issuance. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Jan. 1

image205.wmf

(Click to select)

image206.wmf

image207.wmf

image208.wmf

image209.wmf

image210.wmf

2(a)

For each semiannual period, compute the cash payment. (Omit the "$" sign in your response.)

Cash payment

$ image211.wmf

2(b)

For each semiannual period, compute the the straight-line premium amortization. (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Amount of premium amortized

$ image212.wmf

2(c)

For each semiannual period, compute the the bond interest expense. (Omit the "$" sign in your response.)

Bond interest expense

$ image213.wmf

3.

Determine the total bond interest expense to be recognized over the bonds' life. (Omit the "$" sign in your response.)

Total bond interest expense

$ image214.wmf

4.

Prepare the first two years of an amortization table using the straight-line method. (Omit the "$" sign in your response.)

Semiannual Period-End

Unamortized Premium

Carrying Value

1/01/2011

$ image215.wmf

$ image216.wmf

6/30/2011

image217.wmf

image218.wmf

12/31/2011

image219.wmf

image220.wmf

6/30/2012

image221.wmf

image222.wmf

12/31/2012

image223.wmf

image224.wmf

5.

Prepare the journal entries to record the first two interest payments. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

June 30

image225.wmf

image226.wmf

image227.wmf

image228.wmf

image229.wmf

(Click to select)

image230.wmf

Dec. 31

image231.wmf

image232.wmf

image233.wmf

image234.wmf

image235.wmf

(Click to select)

image236.wmf

check my work HYPERLINK "javascript:doEbook('13252698683588549',%20E_13252698683588549,'http://connect.mcgraw-hill.com/connect/novellaEbook.do?location=/sites/0077318277/student_view0/ebook/chapter10/chbody1/bond_issuances.htm" \l "p3');" \o "eBook Links" eBook Links (2) HYPERLINK "http://ezto.mhecloud.mcgraw-hill.com/" \o "Reference Information" references

Problem 10-6A Straight-line amortization of bond discount L.O. P1, P2

[The following information applies to the questions displayed below.]

Patton issues $590,000 of 7.5%, four-year bonds dated January 1, 2011, that pay interest semiannually on June 30 and December 31. They are issued at $542,310 and their market rate is 10% at the issue date.

references

10.

value: 10.00 points

Problem 10-6A Part 1

1.

Prepare the January 1, 2011, journal entry to record the bonds' issuance. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Jan. 1

image237.wmf

image238.wmf

image239.wmf

image240.wmf

image241.wmf

(Click to select)

image242.wmf

check my work HYPERLINK "javascript:doEbook('13252698692088815',%20E_13252698692088815,'http://connect.mcgraw-hill.com/connect/novellaEbook.do?location=/sites/0077318277/student_view0/ebook/chapter10/chbody1/bond_issuances.htm" \l "p2');" \o "eBook Links" eBook Links (2) HYPERLINK "http://ezto.mhecloud.mcgraw-hill.com/" \o "Reference Information" references

11.

value: 10.00 points

Problem 10-6A Part 2

2.

Determine the total bond interest expense to be recognized over the bonds' life. (Omit the "$" sign in your response.)

Total bond interest expense

$ image243.wmf

check my work HYPERLINK "javascript:doEbook('13252698692088819',%20E_13252698692088819,'http://connect.mcgraw-hill.com/connect/novellaEbook.do?location=/sites/0077318277/student_view0/ebook/chapter10/chbody1/bond_issuances.htm" \l "p2');" \o "eBook Links" eBook Links (2) HYPERLINK "http://ezto.mhecloud.mcgraw-hill.com/" \o "Reference Information" references

12.

value: 10.00 points

Problem 10-6A Part 3

3.

Prepare a straight-line amortization table for the bonds' first two years. (Make sure that the unamortized discount is adjusted to "0" and the carrying value equals to face value of the bond in the last period. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Semiannual Interest Period-End

Unamortized Discount

Carrying Value

1/01/2011

$ image244.wmf

$ image245.wmf

6/30/2011

image246.wmf

image247.wmf

12/31/2011

image248.wmf

image249.wmf

6/30/2012

image250.wmf

image251.wmf

12/31/2012

image252.wmf

image253.wmf

check my work HYPERLINK "javascript:doEbook('13252698692088823',%20E_13252698692088823,'http://connect.mcgraw-hill.com/connect/novellaEbook.do?location=/sites/0077318277/student_view0/ebook/chapter10/chbody1/bond_issuances.htm" \l "p2');" \o "eBook Links" eBook Links (2) HYPERLINK "http://ezto.mhecloud.mcgraw-hill.com/" \o "Reference Information" references

13.

value: 10.00 points

Problem 10-6A Part 4

4.

Prepare the journal entries to record the first two interest payments. (Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

June 30

image254.wmf

(Click to select)

image255.wmf

image256.wmf

image257.wmf

image258.wmf

image259.wmf

Dec. 31

image260.wmf

(Click to select)

image261.wmf

image262.wmf

image263.wmf

image264.wmf

image265.wmf

check my work HYPERLINK "javascript:doEbook('13252698692060689',%20E_13252698692060689,'http://connect.mcgraw-hill.com/connect/novellaEbook.do?location=/sites/0077318277/student_view0/ebook/chapter10/chbody1/bond_issuances.htm" \l "p2');" \o "eBook Links" eBook Links (2) HYPERLINK "http://ezto.mhecloud.mcgraw-hill.com/" \o "Reference Information" references