Chapter 12: 6TI (page 639)
Payne Corporation has the folowing accounts as of December 31, 2018:
Total Assets $60,000
Total Liabilities 20,000
Total Equity 40,000
Compute the debt to equity ratio at December 31,2018.
The debt-equity ratio of the Payne Corporation is 0.5:1
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Retiring bonds payable before maturity
On January 1, 2018, Powell Company issued $350,000 of 10%, five-year bonds payable
at 102. Powell Company has extra cash and wishes to retire the bonds payable on
January 1, 2019, immediately after making the second semiannual interest payment. To
retire the bonds, Powell Company pays the market price of 98.
Requirements
1. What is Powell Company’s carrying amount of the bonds payable on the retirement
date?
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 payable.
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
December 31.
Requirements
1. Journalize the issuance of the bonds on June 30.
2. Journalize the semiannual interest payment on December 31
Reporting current and long-term liabilities
Pediatric Dispensary borrowed \(390,000 on January 2, 2018, by issuing a 15% serial
bond payable that must be paid in three equal annual installments plus interest for the
year. The first payment of principal and interest comes due January 2, 2019. Complete
the missing information. Assume the bonds are issued at face value.
December 31
2018 2019 2020
Current Liabilities:
Bonds Payable \) \( \)
Interest Payable
Long-term Liabilities:
Bonds Payable
When a bond is issued, what is its present value?
Describing bonds, journalizing transactions for bonds payable using the straight-line amortization method, and journalizing transactions for a mortgage payable
This problem continues the Canyon Canoe Company situation from Chapter 11. Canyon Canoe Company is considering raising additional capital for further expansion. The company wants to finance a new business venture into guided trips down the Amazon River in South America. Additionally, the company wants to add another building on their land to offer more services for local customers. Canyon Canoe Company plans to raise the capital by issuing \(210,000 of 7.5%, six-year bonds on January 2, 2020. The bonds pay interest semiannually on June 30 and December 31. The company receives \)208,476 when the bonds are issued.
The company also issues a mortgage payable for \(450,000 on January 2, 2020. The proceeds from the mortgage will be used to construct the new building. The mortgage requires annual payments of \)45,000 plus interest for ten years, payable on December 31. The mortgage interest rate is 8%.
Requirements
1. Will the bonds issue at face value, a premium, or a discount?
2. Record the following transactions. Include dates and round to the nearest dollar. Omit explanations.
a. Cash received from the bond issue.
b. Cash received from the mortgage payable.
c. Semiannual bond interest payments for 2020. Amortize the premium or discount using the straight-line amortization method.
d. Payment on the mortgage payable for 2020.
3. Calculate the total interest expense incurred in 2020.
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