Straight line method of amortization of bond premium

Accounting Assignment

BE14-13
Samson Corporation issued a 5year, $81,500, zero-interest-bearing note to Brown Company on January 1, 2014, and received cash of $48,366. The implicit interest rate is 11%.
Prepare Samson’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest.
(a) Cash 48366
Discount on Notes Payable 33,134
81500 - 48366
Notes Payable 81500
(b) Interest Expense 5320
48366*11%
Discount On Notes Payable 5320
E14-3
1. On January 1, 2014, Simon Company issued $264,000 of 8%, 10 year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1.
2. On June 1, 2014, Garfunkel Company issued $135,600 of 12%, 10 year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1.
For each of these two independent situations, prepare journal entries to record the following.
Simon Company:
1/1/14 (a) The issuance of the bonds.
Cash 264,000
Bonds Payable 264,000
7/1/14 (b) The payment of interest on July 1.
Interest Expense 5280
264000*8%*3/12
Cash 5,280
12/31/14 (c) The accrual of interest on December 31.
Interest Expense 5,280
Interest Payable 5,280
Garfunkel Company:
6/1/14 (a) The issuance of the bonds.
Cash 142,380
135600 + 6780
Bonds Payable 135,600
Interest Expense 6,780
135600*12%*5/12
(b) The payment of interest on July 1.
Interest Expense 8136
135600*12%*6/12
Cash 8,136
(c) The accrual of interest on December 31.
Interest Expense 8,136
Interest Payable 8,136
E14-4
Celine Dion Company issued $852,000 of 8%, 20 year bonds on January 1, 2014, at 101. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight-line method of amortization for bond premium or discount.
Prepare the journal entries to record the following.
(a) The issuance of the bonds.
1/1/14 Cash 860520
852000*101%
Bonds Payable 852000
Premium on Bonds Payable 8520
860520-852000
(b) The payment of interest and the related amortization on July 1, 2014.
7/1/14 Interest Expense 33867
34080-213
Premium on Bonds Payable 213
8520/40
Cash 34080
852000*8%*6/12
(c) The accrual of interest and the related amortization on December 31, 2014.
12/31/14 Interest Expense 33,867
Premium on Bonds Payable 213
Interest Payable 34,080
E14-5
Celine Dion Company issued $780,000 of 10%, 20 year bonds on January 1, 2014, at 102. Interest is payable semiannually on July 1 and January 1. Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.
Prepare the journal entries to record the following.
(a) The issuance of the bonds.
1/1/14 Cash 795,600
780000*102%
Bonds Payable 780,000
Premium on Bonds Payable 1,560
795600-780000
(b) The payment of interest and related amortization on July 1, 2014.
7/1/14 Interest Expense 38,867
795600*9.7705%*1/2
Premium on Bonds Payable 133
Cash 39,000
780000*10%*6/12
(c) The accrual of interest and the related amortization on December 31, 2014.
12/31/14 Interest Expense
795467*9.7705%*1/2 38,861
Premium on Bonds Payable 139
Interest Payable 39,000
795000
39000-38867 = 133 133
795467
E14-8
(a) CeCe Winans Corporation incurred the following costs in connection with the issuance of bonds: (1) printing and engraving costs, $13,940; (2) legal fees, $53,720, and (3) commissions paid to underwriter, $79,960.
What amount should be reported as Unamortized Bond Issue Costs, and where should this amount be reported on the balance sheet?
Amount to be reported as Unamortization Issue Costs 147,620
13940+53720+79960
(C) Ron Kenoly Inc. issued $605,800 of 8%, 10 year bonds on June 30, 2014, for $530,304. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30.
If Kenoly uses the effective interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2014.
530204*0.10*4/12 = 17677
E14-9
On June 30, 2014, Mischa Auer Company issued $4,126,000 face value of 13%, 19year bonds at $4,432,278, a yield of 12%. Auer uses the effective interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31
(a) Prepare the journal entries to record the following transactions.
(1) The issuance of the bonds.
6/30/14 Cash 4,432,278
Bonds Payable 4,126,000
Premium on Bonds Payable 306,274
4432278-4126000
(2) The payment of interest and related amortization on Dec 31, 2014.
12/31/14 Interest Expense 265,937
4432278*12%*6/12
Premium on Bonds Payable 2,253
268190-265802
Cash 268,190
(3) The payment of interest and related amortization on June 30, 2015.
6/30/15 Interest Expense 265,802
4432278-2253*12%*6/12
Premium on Bonds Payable 2,388
268190-265802
Cash 268,190
(4) The payment of interest and related amortization on Dec 31, 2015.
12/31/15 Interest Expense 265,658
4432278 - 2253 - 2388
Premium on Bonds Payable 2532
Cash 268190
(b) Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 15, balance sheet.
Long-term Liabilities
Bonds Payable 4126000
Premiun on Bonds Payable 299,105
Book Value of Bonds Payable 4,425,105
(c) Provide the answers to the following questions.
(1) What amount of interest expense is reported for 2015?
Interest expense 265802 - 265658 = 531460
(2) Will the bond interest expense reported in 2015 be the same as, greater than, or less than the amount that would be reported if the straight line method of amortization were used?
Premium per year under SL method
Interest Expense for 2015 under SL
(3) Determine the total cost of borrowing over the life of the bond.
Interest Expense for 19 years 4126000*13%*19 10191220
add:Principle Due in2034 4126000
14317220
minus:Cash Received when issuing 4432278
9884942
(4) Will the total bond interest expense for the life of the bond be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used?
the same
E14-12
On January 2, 2009, Banno Corporation issued $1,610,000 of 10% bonds at 98 due December 31, 2018. Legal and other costs of $26,600 were incurred in connection with the issue. Interest on the bonds is payable annually each December 31. The $26,600 issue costs are being deferred and amortized on a straight-line basis over the 10 year term of the bonds.
The discount on the bonds is also being amortized on a straight-line basis over the 10 years.
The bonds are callable at 102 (i.e., at 102% of face amount), and on January 2, 2014, Banno called $1,224,000 face amount of the bonds and redeemed them.
Prepare the journal entry to record the redemption.
Reacquisition price 985,320
966000*102%
Net C.A. of bonds redemeed: 966,000
Face Value (9,660)
Unamoritzed Discount (7,980) 948360
Unamoritzed Issue costs
Loss on Redemption 36960
Bonds Payable - 0 966000
Loss on Redemption of Bonds - 0 36960
Unamortized Bond Issue Costs 7980
Discouns on Bonds Payable - 0 9660
Cash 985320
***** 26600*966000/161000=15960
15960/10 = 1596
1596*5 = 7980
96600*2% = 19320
19320/10 = 1932
1932*5=9660
P14-1
The following amortization and interest schedule reflects the issuance of 11 year bonds by Capulet Corporation on January 1, 2008, and the subsequent interest payments and charges. The company’s year end is December 31, and financial statements are prepared once yearly
(a) Indicate whether the bonds were issued at a premium or a discount.
(b) Indicate whether the amortization schedule is based on the straight-line method or the effective interest method.
(c) Determine the stated interest rate and the effective interest rate.
The stated rate %
The effective rate %
(d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2008.
1/1/08 Cash
Discount on Bonds Payable
Bonds Payable
(e) On the basis of the schedule above, prepare the journal entry to reflect the bond transactions and accruals for 2008.
12/31/08 Interest Expense
Discount on Bonds Payable
Interest Payable
(f) On the basis of the schedule above, prepare the journal entries to reflect the bond transactions and accruals for 2015. Capulet Corporation does not use reversing entries.
1/1/15 Interest Payable
Cash
12/31/15 Interest Expense
Discount on Bonds Payable
Interest Payable
IFRS14-3
On January 1, 2014, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The bonds were issued for $559,224, and pay interest each July 1 and January 1.
Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective interest rate of 8%.
(a) Cash 559,224
Bonds Payable 559,224
(b) Interest Expense 22,369
559224*8%*6/12
Cash 21,000
600000*7%*6/12
Bonds Payable 1,369
(c) Interest Expense 22,424
560593*8%*6/12
Interest Payable 21,000
600000*7%*6/12
Bonds Payable 1,424