Chapter 12: Q10RQ (page 654)
What is the carrying amount of a bond?
Difference between the bond payable and discount amount is the carrying amount of bond.
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Analyzing and journalizing bond transactions
On January 1, 2018, Electricians Credit Union (ECU) issued 8%, 20-year bondspayable with face value of $400,000. The bonds pay interest on June 30 andDecember 31. The issue price of the bonds is 104.
Journalize the following bond transactions:
a. Issuance of the bonds on January 1, 2018.
b. Payment of interest and amortization on June 30, 2018.
c. Payment of interest and amortization on December 31, 2018.
d. Retirement of the bond at maturity on December 31, 2037, assuming the last interestpayment has already been recorded.
Determining the present value of bonds payable
Interest rates determine the present value of future amounts. (Round to the nearest
dollar.)
Requirements
1. Determine the present value of 10-year bonds payable with face value of $86,000
and stated interest rate of 14%, paid semiannually. The market rate of interest is
14% at issuance.
2. Same bonds payable as in Requirement 1, but the market interest rate is 16%.
3. Same bonds payable as in Requirement 1, but the market interest rate is 12%.
Determining the present value of bonds payable and journalizingusing the effective-interest amortization methodBrad Nelson, Inc. issued \(600,000 of 7%, six-year bonds payable on January 1, 2018.
The market interest rate at the date of issuance was 6%, and the bonds pay interestsemiannually.
Learning Objectives 2, 3, 4
3. June 30, 2018, InterestExpense \)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 secondpayments of the semiannual interest amount and amortization of the bonds onJune 30, 2018, and December 31, 2018. Explanations are not required.
Determining bond prices and interest expense
Jones Company is planning to issue $490,000 of 9%, five-year bonds payable to
borrow for a major expansion. The owner, Shane Jones, asks your advice on some
related matters.
Requirements
1. Answer the following questions:
a. At what type of bond price Jones Company will have total interest expense
equal to the cash interest payments?
b. Under which type of bond price will Jones Company’s total interest expense be
greater than the cash interest payments?
c. If the market interest rate is 12%, what type of bond price can Jones Company
expect for the bonds?
2. Compute the price of the bonds if the bonds are issued at 89.
3. How much will Jones Company pay in interest each year? How much will Jones
Company’s interest expense be for the first year?
Determining the present value of bonds payable
Interest rates determine the present value of future amounts. (Round to the nearest
dollar.)
Requirements
1. Determine the present value of 10-year bonds payable with face value of $86,000
and stated interest rate of 14%, paid semiannually. The market rate of interest is
14% at issuance.
2. Same bonds payable as in Requirement 1, but the market interest rate is 16%.
3. Same bonds payable as in Requirement 1, but the market interest rate is 12%.
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