Chapter 12: Q6RQ (page 654)
When does a discount on bonds payable occur?
Discount on the bonds payable when issued less than their face value.
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Determining bond amounts
Savvy Drive-Ins borrowed money by issuing $3,500,000 of 9% bonds payable
at 99.5. Interest is paid semiannually.
Requirements
1. How much cash did Savvy receive when it issued the bonds payable?
2. How much must Savvy pay back at maturity?
3. How much cash interest will Savvy pay each six months?
Analyzing and journalizing bondtransactions
On January1, 2018, Doctors Credit Union (DCU) issued 7%, 20-year bondspayable with face value of $200,000. The bonds pay interest on June 30 andDecember 31.
Requirements
1. If the market interest rate is 5% when DCU 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 8% when DCU 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 93. 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 been recorded.
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.
Analyzing, journalizing, and reporting bond transactions
Danny’s Hamburgers issued 6%, 10-year bonds payable at 90 on December 31, 2018.
At December 31, 2020, Danny reported the bonds payable as follows:
Long-term Liabilities:
Bonds Payable \( 600,000
Less: Discount on Bonds Payable (48,000) \) 552,000
Danny’s pays semiannual interest each June 30 and December 31.
Requirements
1. Answer the following questions about Danny’s bonds payable:
a. What is the maturity value of the bonds?
b. What is the carrying amount of the bonds at December 31, 2020?
c. What is the semiannual cash interest payment on the bonds?
d. How much interest expense should the company record each year?
2. Record the June 30, 2020, semiannual interest payment and amortization of
discount.
What is a bond payable?
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