None Exercise 10-22A (Algo) Effective interest amortization for a bond premium LO 10-7On January 1, Year 1, Hart Company issued bonds with a face value of $117,000, a stated rate of interest of 10 percent, and a five-yearterm to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 9 percent at the time thebonds were issued. The bonds sold for $121,551. Hart used the effective interest rate method to amortize the bond premium.Note: Round your intermediate calculations and final answers to the nearest whole number.Required:a. Prepare an amortization table.DateCashInterest PremiumPayment Expense AmortizationCarryingValueJanuary 1, Year 1December 31, Year 1December 31, Year 2$ 11,700 $ 10,940 $760$ 121,551120,791December 31, Year 3December 31, Year 4December 31, Year 5Totalsb. What is the carrying value that would appear on the Year 4 balance sheet?c. What is the interest expense that would appear on the Year 4 income statement?d. What is the amount of cash outflow for interest that would appear in the operating activities section of the Year 4 statement of cashflows?b. Carrying value on the Year 4c. Interest expense for Year 4d. Cash outflow for interest in Year 4

The bonds are the long-term liabilities of the business. The bonds are issued to raise the money…

Answered: Exercise 10-22A (Algo) Effective…

Corporate Financial Accounting

14th Edition

ISBN:9781305653535

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter11: Liabilities: Bonds Payable

Section: Chapter Questions

Problem 11.1BPR: Bond discount, entries for bonds payable transactions On July 1, Year 1, Livingston Corporation, a...

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MASTERY PROBLEM Jackson, Inc.s fiscal year ends December 31. Selected transactions for the period 20-1 through 20-8 involving bonds payable issued by Jackson are as follows: 20-1 Oct. 31 Issued 600,000 of 10-year, 7%, callable bonds dated October 31, 20-1, for 612,000. Interest is payable semiannually on October 31 and April 30. The bond indenture provides that Jackson is to pay to the trustee bank 20,000 by May 15 of each year (except the tenth year) as a sinking fund for the retirement of the bonds on call or at maturity. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds (straight-line method). 20-2 Jan. 2 Reversed the adjusting entry for interest payable and bond premium amortization. Apr. 30 Paid the semiannual interest on the bonds and amortized six months premium. May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds. 31 Sinking fund earnings for the year were 900. 20-8 May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. 31 Redeemed the bonds, which were called at 97. The balance in the bond premium account is 3,600 after the payment of interest and amortization of premium have been entered. The cash balance in the sinking fund is 200,000, which is applied to the redemption. Jackson paid the sinking fund trustee the additional cash needed to pay off the bonds. (Hint: First make the entry for payment to the sinking fund, then make the entry for redemption of the bonds.) REQUIRED 1. Enter the preceding transactions in general journal form. 2. Calculate the carrying value of the bonds as of December 31, 20-2.
Bond discount, entries for bonds payable transactions On July 1, Year 1, Danzer Industries Inc. issued 40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of 37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. 2. Journalize the entries to record the following: A. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.) B. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.) 3. Determine the total interest expense for Year 1. 4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest? 5. (Appendix 1) Compute the price of 37,282,062 received for the bonds by using the present value tables in Appendix A at the end of the text. (Round to the nearest dollar.)

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