On July 1, 2012, Insta Inc. issues $3,000,000 face value seven-year bonds with annual interest payments of $150,000 to be paid each June 30. The market interest rate is 7.5%. According to the effective interest rate method of amortization, Insta is most likely to report: Choose an option: i) an interest expense of $150,000 in the June 30, 2013 income statement. ii) a cash inflow of $195,207 from operating activities in the June 30, 2013 statement of cash flow. iii) a liability of $2,647,962 in the June 30, 2013 balance sheet.

On July 1, 2012, Insta Inc. issues $3,000,000 face value seven-year bonds with annual interest payments of $150,000 to be paid each June 30. The market interest rate is 7.5%. According to the effective interest rate method of amortization, Insta is most likely to report: Choose an option: i) an interest expense of $150,000 in the June 30, 2013 income statement. ii) a cash inflow of $195,207 from operating activities in the June 30, 2013 statement of cash flow. iii) a liability of $2,647,962 in the June 30, 2013 balance sheet.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 1PA: On January 1, 2018, King Inc. borrowed $150,000 and signed a 5-year, note payable with a 10%...

See similar textbooks

Similar questions

On January 1, 2018, King Inc. borrowed $150,000 and signed a 5-year, note payable with a 10% interest rate. Each annual payment is in the amount of $39,569 and payment is due each Dec. 31. What is the journal entry on Jan. 1 to record the cash received and on Dec. 31 to record the annual payment? (You will need to prepare the first row in the amortization table to determine the amounts.)
On July 1, 2019, Aldrich Company purchased as an available-for-sale security 200,000 face value, 9% U.S. Treasury notes for 194,000. The notes mature July 1, 2020, and pay interest semiannually on January 1 and July 1. The notes were sold on December 1, 2019, for 199,000. Aldrich normally uses straight-line amortization on all of its notes. In its income statement for the year ended December 31, 2019, what amount should Aldrich report as a gain on the sale of the available-for-sale security? a. 2,500 b. 3,500 c. 5,000 d. 6,000
Cookie Dough Corporation issued $850,000 in 9%, 10-year bonds (payable on December 31, 2030) on January 1, 2021, for $907,759. Interest is paid on June 30 and December 31. The market rate of interest is 8%. Required: Prepare the amortization table through December 31, 2023, using the effective interest rate method. If an amount box does not require an entry, leave it blank and if the answer is zero, enter "0". If required, round your answers to the nearest whole dollar
On June 1, 2019, Swifty Company sold $2,460,000 in long-term bonds for $2,157,700. The bonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method. (a) Construct a bond amortization table for this problem to indicate the amount of interest expense and discount amortization at each May 31. (Please round interest expense and bond discount columns to zero decimal places.) Date Credit Cash DebitInterest Expense CreditBond Discount CarryingAmount of Bonds 6/1/19 $ 5/31/20 $ $ $ 5/31/21 5/31/22 5/31/23
On July 1, 2012, Beta Inc. issues $3,000,000 face value seven-year bonds with annual interest payments of $150,000 to be paid each June 30. The market interest rate is 7.5%. According to the effective interest rate method of amortization, Beta is most likely to report: Select one: A. an interest expense of $150,000 in the June 30, 2013 income statement. O B. a cash inflow of $195,207 from operating activities in the June 30, 2013 statement of cash flow. C. a liability of $2,647,962 in the June 30, 2013 balance sheet.
On January 1, 2021, White Water issues $600,000 of 7% bonds, due in 10 years, with interest payable annually on December 31 each year.Required:Assuming the market interest rate on the issue date is 6%, the bonds will issue at $644,161.1. Complete the first three rows of an amortization schedule. (Hint: Use Illustration 9–7, except the dates for the first three rows will be 1/1/21, 12/31/21, and 12/31/22 since interest is payable annually rather than semiannually. Interest expense for the period ended December 31, 2021, is calculated as the carrying value of $644,161 times the market rate of 6%.)2. Record the bond issue on January 1, 2021, and the first two interest payments on December 31, 2021, and December 31, 2022.
Sheridan Industries, Inc. issued $17,400,000 of 8% debertures on May 1, 2024 and received cash totaling $15,438,373. The bonds pay interest semiannually on May 1 and November 1. The maturity date on these bonds is November 1, 2028. The firm uses the effective- interest method of amortizing discounts and premiums. The bonds were sold to yield an effective rate of 10%. Calculate the total dollar amount of discount or premium amortization during the first year (5/1/24 through 4/30/25) these bonds were outstanding. (Round answers to O decimal places, e.g. 5,275.) Date 5/1/24 11/1/24 5/1/25 Total $ Cash Interest Interest Expense tA $ $ Discount Amortized $ Carrying Value of Bon
On June 1, 2024, Cullumber Bottle Company sold $3,840,000 in long-term bonds for $3,368,086. The bonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method. (a) Construct a bond amortization table for this problem to indicate the amount of interest expense and discount amortization at each May 31. Include only the first four years. (Round answers to O decimal places, e.g. 25,000.) Date 6/1/24 5/31/25 5/31/26 5/31/27 5/31/28 LA Credit Cash LA Debit Interest Expense 1 $ LA Credit Bond Discount 11 Carrying Amoun $
On June 1,2024 , Blossom Bottle Company sold $3,720,000 in long-term bonds for $3,262,833. The bonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method. (a) Construct a bond amortization table for this problem to indicate the amount of interest expense and discount amortization at each May 31. Include only the first four years. (Round answers to 0 decimal places, e.g. 25,000.) Date 61/24 531/25 531/26 531/27 5/31/28 Carrying Amount Debit Interest Expense Credit Bond Discount Bonds $ $ $
On June 1, 2024, Sheridan Bottle Company sold $3,420,000 in long-term bonds for $2,999,701. The bonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective-interest method. (a) Construct a bond amortization table for this problem to indicate the amount of interest expense and discount amortization at each May 31. Include only the first four years. (Round answers to 0 decimal places, e.g. 25,000.) Credit Bond Discount Date 6/1/24 5/31/25 5/31/26 5/31/27 5/31/28 $ Credit Cash Debit Interest Expense Carrying Amou $ M W Ở Aca QL Acc Qui Acce
On January 1, 2024, Ithaca Corporation purchases Cortland Incorporated bonds that have a face value of $210,000. The Cortland bonds have a stated interest rate of 10%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows: Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) January 1, 2024 11.0% June 30, 2024 12.0% December 31, 2024 14.0% Prepare all appropriate journal entries related to the bond investment during 2024, assuming that Ithaca chose the fair value option when the bonds were purchased, and that Ithaca determines fair value of the bonds semiannually. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds. 1. Record the investment in bonds with a face value of $210,000, a stated interest rate of 10% and a market…
On January 1, 2024, Ithaca Corporation purchases Cortland Incorporated bonds that have a face value of $210,000. The Cortland bonds have a stated interest rate of 10%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows: Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) January 1, 2024 11.0% June 30, 2024 12.0% December 31, 2024 14.0%