Chapter 12: Q20RQ (page 655)
How does compound interest differ from simple interest?
In the simple interest, interest is calculated on the principal amount only. On the other hand, compound interest is calculated on principal and all previous interest.
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Reporting liabilities on the balance sheet and computing debt toequity ratio.The accounting records of Pack Leader Wireless include the following as ofDecember 31, 2018:
Accounts Payable \( 77,000 Salaries Payable \) 7,500
Mortgages Payable (long-term) 73,000 Bonds Payable (current portion) 25,000
Interest Payable 18,000 Premium on Bonds Payable 10,000
Bonds Payable (long-term) 63,000 Unearned Revenue (short-term) 2,700
Total Stockholders’ Equity 140,000
Requirements
1. Report these liabilities on the Pack Leader Wireless balance sheet, includingheadings and totals for current liabilities and long-term liabilities.
2. Compute Pack Leader Wireless’s debt to equity ratio at December 31, 2018.
What is a bond payable?
Analyzing and journalizing bond transactions
On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds payablewith face value of $600,000. The bonds pay interest on June 30 and December 31.
Requirements
1. If the market interest rate is 7% when NCU issues its bonds, will the bonds bepriced at face value, at a premium, or at a discount? Explain.
2. If the market interest rate is 9% when NCU issues its bonds, will the bonds bepriced at face value, at a premium, or at a discount? Explain.
3. The issue price of the bonds is 92. 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 lastinterest payment has already beenrecorded.
Analyzing and journalizing bond transactions
On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds payable
with face value of $600,000. The bonds pay interest on June 30 and December 31.
Requirements
1. If the market interest rate is 7% when NCU issues its bonds, will the bonds be
priced at face value, at a premium, or at a discount? Explain.
2. If the market interest rate is 9% when NCU issues its bonds, will the bonds be
priced at face value, at a premium, or at a discount? Explain.
3. The issue price of the bonds is 92. 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
interest payment has already been recorded.
What is an amortization schedule?
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