Chapter 12: Q18RQ (page 655)
Explain each of the key factors that the time value of money depends on.
The three key factors of the time value of money are principal, number of period and interest rate.
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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.
Journalizing bond transactions including retirement at maturity
McQueen Company issued a $100,000, 7.5%, 10-year bond payable. Journalize
the following
transactions for McQueen Company, and include an explanation for each
entry:
a. Issuance of the bond payable at face value on January 1, 2018.
b. Payment of semiannual cash interest on July 1, 2018.
c. Payment of the bond payable at maturity, assuming the last interest
payment had
already been recorded. (Give the date.)
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.
Herrera Corporation issued a $400,000, 4.5%, 10-year bond payable on January 1, 2018. Journalize the payment of the bond
payable at maturity. (Give the date.)
Journalizing liability transactions and reporting them on the balance sheet
The following transactions of Great Value Pharmacies occurred during 2018 and 2019:
2018
Mar. 1 Borrowed \(390,000 from Bartow Bank.The six-year, 13% note requires payments due annually, on March 1. Each payment consists of \)65,000 principal plus one year’s interest.
Dec. 1 Mortgaged the warehouse for \(350,000 cash with Saylor Bank. The mortgagerequires monthly payments of \)7,000. The interest rate on the note is 9% andaccrues monthly. The first payment is due on January 1, 2019.
31 Recorded interest accrued on the Saylor Bank note.
31 Recorded interest accrued on the Bartow Bank note.
2019
Jan. 1 Paid Saylor Bank monthly mortgage payment.
Feb. 1 Paid Saylor Bank monthly mortgage payment.
Mar. 1 Paid Saylor Bank monthly mortgage payment.
1 Paid first installment on note due to Bartow Bank.
Requirements
1. Journalize the transactions in the Great Value Pharmacies general journal. Roundto the nearest dollar. Explanations are not required.
2. Prepare the liabilities section of the balance sheet for Great Value Pharmacies onMarch 1, 2019 after all the journal entries are recorded.
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