Chapter 13 Flashcards
Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%. Compute the issue price of the bonds.
Present Value of 1:
20 periods, 5% = 0.37689
Present value of the principal:
500,000 * 0.37689 = 188,445
Present Value of Ordinary Annuity of 1:
20 periods, 5% = 12.46221
Present value of the interest payments:
500,000 * 0.09 * 1/2 = 22,500
22,500 * 12.46221 = 280,400
Issue price (188,445 + 280,400) = 468,845
The Colson Company issued $300,000 of 10% bonds on January 1, 2025. The bonds are due January 1, 2030, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson’s journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.
(a) (1/1)
D - Cash: 300,000
C - Bonds Payable: 300,000
(b) (7/1)
D - Interest Expense: 15,000
C - Cash (300,000 * 0.10 * 6/12): 15,000
(c) (12/31)
D - Interest Expense: 15,000
C - Interest Payable (300,000 * 0.10 * 6/12): 15,000
The Colson Company issued $300,000 of 10% bonds on January 1, 2025. The bonds are due January 1, 2030, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson’s journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.
Assume the bonds in the above problem were issued at 98. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line amortization semiannually.
(a) (1/1)
D - Cash (300,000 * 0.98): 294,000
D - Discount on Bonds Payable (300,000 - 294,000): 6,000
C - Bonds Payable: 300,000
(b) (7/1)
D - Interest Expense (15,000 + 600): 15,600
C - Discount on Bonds Payable (6,000 * 1/10): 600
C - Cash (300,000 * 0.10 * 6/12): 15,000
(c) (12/31)
D - Interest Expense (15,000 + 600): 15,600
C - Discount on Bonds Payable (6,000 * 1/10): 600
C - Interest Payable (300,000 * 0.10 * 6/12): 15,000
The Colson Company issued $300,000 of 10% bonds on January 1, 2025. The bonds are due January 1, 2030, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson’s journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.
Assume the bonds in the above problem were issued at 103. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line amortization semiannually.
(a) (1/1)
D - Cash (300,000 * 1.03): 309,000
C - Bonds Payable: 300,000
C - Premium on Bonds Payable: 9,000
(b) (7/1)
D - Interest Expense: 14,100
D - Premium on Bonds Payable (9,000 * 1/10): 900
C - Cash (300,000 * 0.10 * 6/12): 15,000
(c) (12/31)
D - Interest Expense: 14,100
D - Premium on Bonds Payable: (9,000 * 1/10): 900
C - Interest Payable (300,000 * 0.10 * 6/12): 15,000
Devers Corporation issued $400,000 of 6% bonds on May 1, 2025. The bonds were dated January 1, 2025, and mature January 1, 2028, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Devers’s journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.
(a)
D - Cash: 408,000
C - Bonds Payable: 400,000
C - Interest Expense (400,000 * 0.06 * 4/12): 8,000
(b)
D - Interest Expense: 12,000
C - Cash (400,000 * 0.06 * 6/12): 12,000
(c)
D - Interest Expense: 12,000
C - Interest Payable: (400,000 * 0.06 * 6/12): 12,000
On January 1, 2025, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The bonds were issued for $559,224, and pay interest each July 1 and January 1. JWS uses the effective-interest method. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 8%.
(a) (1/1)
D - Cash: 559,224
D - Discount on Bonds Payable: 40,776
C - Bonds Payable (7%, 10 year): 600,000
(b) (7/1)
D - Interest Expense (559,224 * 0.08 * 6/12): 22,369
C - Cash (600,000 * 0.07 * 6/12): 21,000
C - Discount on Bonds Payable: 1,369
(c) (12/31)
559,224 + 1,369 = 560,593
D - Interest Expense (560,593 * 0.08 * 6/12): 22,424
C - Interest Payable (600,000 * 0.07 * 6/12): 21,000
C - Discount on Bonds Payable: 1,424
On January 1, 2025, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The bonds were issued for $559,224, and pay interest each July 1 and January 1. JWS uses the effective-interest method. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 8%.
Assume the bonds in the above problem were issued for $644,636 and the effective-interest rate is 6%. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.
(a) (1/1)
D - Cash: 644,636
C - Bonds Payable: 600,000
C - Premium on Bonds Payable: 44,636
(b) (7/1)
D - Interest Expense (644,636 * 0.06 * 6/12): 19,339
D - Premium on Bonds Payable: 1,661
C - Cash (600,000 * 0.07 * 6/12): 21,000
(c) (12/31)
644,636 - 1,661 = 642,975
D - Interest Expense (642,975 * 0.06 * 6/12): 19,289
D - Premium on Bonds Payable: 1,711
C - Interest Payable (600,000 * 0.07 * 6/12): 21,000
Teton Corporation issued $600,000 of 7% bonds on November 1, 2025, for $644,636. The bonds were dated November 1, 2025, and mature in 10 years, with interest payable each May 1 and November 1. Teton uses the effective-interest method with an effective rate of 6%. Prepare Teton’s December 31, 2025, adjusting entry.
D - Interest Expense (644,636 * 0.06 * 2/12): 6,446
D - Premium on Bonds Payable: 554
C - Interest Payable (600,000 * 0.07 * 2/12): 7,000
On January 1, 2025, Henderson Corporation redeemed $500,000 of bonds at 99. At the time of redemption, the unamortized premium was $15,000. Prepare the corporation’s journal entry to record the reacquisition of the bonds.
D - Bonds Payable: 500,000
D - Premium on Bonds Payable: 15,000
Gain = ((500,000 + 15,000) - 495,000) = 20,000
C - Gain on Redemption of Bonds: 20,000
C - Cash (500,000 * 0.99): 495,000
Coldwell, Inc. issued a $100,000, 4-year, 10% note at face value to Flint Hills Bank on January 1, 2025, and received $100,000 cash. The note requires annual interest payments each December 31. Prepare Coldwell’s journal entries to record (a) the issuance of the note and (b) the December 31 interest payment.
(a) (1/1)
D - Cash: 100,000
C - Notes Payable: 100,000
(b) (12/31)
D - Interest Expense: 10,000
C - Cash (100,000 * 0.10): 10,000
Samson Corporation issued a 4-year, $75,000, zero-interest-bearing note to Brown Company on January 1, 2025, and received cash of $47,664. The implicit interest rate is 12%. Prepare Samson’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest.
(a)
D - Cash: 47,664
D - Discount on Notes Payable: 27,336
C - Notes Payable: 75,000
(b)
D - Interest Expense: 5,720
C - Discount on Notes Payable (47,664 * 0.12): 5,720
McCormick Corporation issued a 4-year, $40,000, 5% note to Greenbush Company on January 1, 2025, and received a computer that normally sells for $31,495. The note requires annual interest payments each December 31. The market rate of interest for a note of similar risk is 12%. Prepare McCormick’s journal entries for (a) the January 1 issuance and (b) the December 31 interest.
(a) (1/1)
D - Equipment: 31,495
D - Discount on Notes Payable: 8,505
C - Notes Payable (4 year, 5%): 40,000
(b) (12/31)
D - Interest Expense (31,495 * 0.12): 3,779
C - Cash (40,000 * 0.05): 2,000
C - Discount on Notes Payable: 1,779
Shlee Corporation issued a 4-year, $60,000, zero-interest-bearing note to Garcia Company on January 1, 2025, and received cash of $60,000. In addition, Shlee agreed to sell merchandise to Garcia at an amount less than regular selling price over the 4-year period. The market rate of interest for similar notes is 12%. Prepare Shlee Corporation’s January 1 journal entry.
D - Cash: 60,000
D - Discount on Notes Payable: 21,869
C - Notes Payable: 60,000
C - Unearned Sales Revenue (60,000 - (60,000 * 0.63552): 21,869
Shonen Knife Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 11% and has a carrying value of $16,000. At year-end, Shonen Knife’s borrowing rate (credit risk) has declined; the fair value of the note payable is now $17,500. (a) Determine the unrealized holding gain or loss on the note. (b) Prepare the entry to record any unrealized holding gain or loss.
(a)
Fair Value - Book Value
17,500 - 16,000 = 1,500 unrealized holding loss
(b)
D - Unrealized Holding Gain or Loss–Equity: 1,500
C - Notes Payable: 1,500
At December 31, 2025, Hyasaki Corporation has the following account balances:
- Bonds payable, due January 1, 2034: $2,000,000
- Discount on bonds payable: 88,000
- Interest payable: 80,000
Show how the above accounts should be presented on the December 31, 2025, balance sheet, including the proper classifications.
Current Liabilities:
- Interest Payable: 80,000
Long-Term Liabilities:
- Bonds Payable, due January 1, 2034: 2,000,000
- Less: Discount on Bonds Payable: 88,000
- Total: 1,912,000
