Chapter 12: Q21RQ (page 655)
In regard to a bond discount or premium, what is the effective-interest amortization
method?
Effective interest amotization is the method used amortize the bond by using the book value and actual interest rate.
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Retiring bonds payable before maturity
CoastalView Magazineissued $600,000 of 15-year, 5% callable bonds payable on July31, 2018, at 94. On July 31, 2021, CoastalViewcalled the bonds at 101. Assume annualinterest payments.
Requirements
1. Without making journal entries, compute the carrying amount of the bonds payableat July 31, 2021.
2. Assume all amortization has been recorded properly. Journalize the retirement ofthe bonds on July 31, 2021. No explanation is required.
Journalizing bond issuance and interest payments
On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with a
face value of $240,000. The bonds are issued at 104 and pay interest on June 30 and
December 31.
Requirements
1. Journalize the issuance of the bonds on January 1, 2018.
2. Journalize the semiannual interest payment and amortization of bond premium on
June 30, 2018.
3. Journalize the semiannual interest payment and amortization of bond premium on
December 31, 2018.
4. Journalize the retirement of the bond at maturity, assuming the last interest payment
has already been recorded. (Give the date).
How does compound interest differ from simple interest?
What is a mortgage payable?
Accounting for long-term notes payable transactions
Consider the following note payable transactions of Caleb Video Productions.
2018
Oct. 1 Purchased equipment costing \(80,000 by issuing a five-year, 8% note
payable. The note requires annual principal payments of \)16,000 plus
interest each October 1.
Dec. 31 Accrued interest on the note payable.
2019
Oct. 1 Paid the first installment on the note.
Dec. 31 Accrued interest on the note payable.
Requirements
1. Journalize the transactions for the company.
2. Considering the given transactions only, what are Caleb Video Productions’ total
liabilities on December 31, 2019?
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