Chapter 12: Q13RQ (page 654)
What type of account is Premium on Bonds Payable? What is its normal balance? Is it added to or subtracted from the Bonds Payable account to determine the carrying amount?
The premium on bonds payable is known as the excess amount over the face value of the 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.
What are the two categories of liabilities reported on the balance sheet? Provide
examples of each.
Journalizing bond transactions
Power Company issued a $1,000,000, 5%, 5-year bond payable at face value on
January 1, 2018. Interest is paid semiannually on January 1 and July 1.
Requirements
1. Journalize the issuance of the bond payable on January 1, 2018.
2. Journalize the payment of semiannual interest on July 1, 2018.
Weaver Corporation includes the following selected accounts in its general ledger on December 31, 2018:
Notes Payable (long-term) \( 75,000 Interest Payable (due next year) \) 720
Bonds Payable (long-term) 195,000 Sales Tax Payable 480
Accounts Payable 20,400 Premium on Bonds Payable 5,850
Salaries Payable 1,680 Estimated Warranty Payable 1,080
Prepare the liabilities section of Weaver Corporation’s balance sheet at December 31, 2018.
Determining the present value of bonds payable and journalizingusing the effective-interest amortization methodRelaxation, Inc. is authorized to issue 7%, 10-year bonds payable. On January 1, 2018,when the market interest rate is 12%, the company issues $300,000 of the bonds. Thebonds pay interest semiannually.
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.
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