Chapter 12: Q14RQ (page 655)
What is the journal entry to retire bonds at maturity?
Bond payable is debited and cash credited to record the retirement of bond.
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Preparing an amortization schedule and recording mortgages payable
entries
Kellerman Company purchased a building and land with a fair market value of
\(550,000 (building, \)425,000, and land, \(125,000) on January 1, 2018. Kellerman
signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of
\)3,940.37. Round to two decimal places. Explanations are not required for journal
entries.
Requirements
1. Journalize the mortgage payable issuance on January 1, 2018.
2. Prepare an amortization schedule for the first two payments.
3. Journalize the first payment on January 31, 2018.
4. Journalize the second payment on February 28, 2018.
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.
Journalizing bond issuance and interest payments
On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with aface value of $240,000. The bonds are issued at 104 and pay interest on June 30 andDecember 31.
Requirements
1. Journalize the issuance of the bonds on January 1, 2018.
2. Journalize the semiannual interest payment and amortization of bond premium onJune 30, 2018.
3. Journalize the semiannual interest payment and amortization of bond premium onDecember 31, 2018.
4. Journalize the retirement of the bond at maturity, assuming the last interest paymenthas already been recorded. (Give the date).
Your grandfather would like to share some of his fortune with you. He offers to give
you money under one of the following scenarios (you get to choose):
1. \(8,750 per year at the end of each of the next six years
2. \)49,650 (lump sum) now
3. $100,450 (lump sum) six years from now
C H A P T E R 1 2
Requirements
1. Calculate the present value of each scenario using a 6% discount rate. Which scenario
yields the highest present value? Round to the nearest dollar.
2. Would your preference change if you used a 12% discount rate?
Using the effective-interest amortization method
On December 31, 2018, when the market interest rate is 8%, Biggs Realty issues
\(450,000 of 5.25%, 10-year bonds payable. The bonds pay interest semiannually. The
present value of the bonds at issuance is \)365,732.
Requirements
1. Prepare an amortization table using the effective interest amortization method for
the first two semiannual interest periods. (Round to the nearest dollar.)
2. Using the amortization table prepared in Requirement 1, journalize issuance of the
bonds and the first two interest payments.
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