| P14-5 (Comprehensive Bond Problem) (Note: Calculations with financial calculators or tables might result in slightly different values due to rounding.) |
| Instructions: (Round to the nearest dollar.) In each of the following independent cases the company closes its books on December 31. For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.) |
|
| 1 Lime Co. sells | $600,000 | of | 9% | bonds on March 1, 2014. The |
| bonds pay interest on October 1 and April 1. The due date of the bonds is October 1, 2018. |
| The bonds yield | 8% | Give the entries through December 31, 2015. |
|
| Apr 1, 14 | cas | Amount | |
| Account Title | Amount | |
| Account Title | | Amount |
|
| Maturity value of bonds payable | Amount | |
| Present value of $250,000 due in 7 periods at 6% | Formula | |
| Present value of interest payable semiannually | Formula | |
| Proceeds from sale of bonds | Formula | |
| Discount on bonds payable | Formula | |
|
| Sep 1, 14 | Account Title | Amount | |
| Account Title | | Amount |
| Account Title | | Amount |
|
| Dec 31, 14 | Account Title | Amount | |
| Account Title | | Amount |
| Account Title | | Amount |
| Note: Amortization table is semi-annual, interest rate is stated as annual value. |
|
| Mar 1, 15 | Account Title | Amount | |
| Account Title | Amount | |
| Account Title | | Amount |
| Account Title | | Amount |
|
| Sep 1, 15 | Account Title | Amount | |
| Account Title | | Amount |
| Account Title | | Amount |
|
| Dec 31, 15 | Account Title | Amount | |
| Account Title | | Amount |
| Account Title | | Amount |
| |
| Schedule of Bond Discount Amortization | |
| Effective Interest Method | |
| 10% Bonds Sold to Yield 12% | |
| Date | Cash Paid | Interest Expense | Bond Discount | Carrying Value of Bonds | |
| Mar 1, 14 | | | | Amount | |
| Sep 1, 14 | Formula | Formula | Formula | Formula | |
| Mar 1, 15 | Formula | Formula | Formula | Formula | |
| Sep 1, 15 | Formula | Formula | Formula | Formula | |
| Mar 1, 16 | Formula | Formula | Formula | Formula | |
| Sep 1, 16 | Formula | Formula | Formula | Formula | |
| Mar 1, 17 | Formula | Formula | Formula | Formula | |
| Sep 1, 17 | Formula | Formula | Formula | Formula | |
|
| 2. Lemon Co. sells | $1,000,000 | of | 10% | bonds on August 1, 2014. The |
| bonds pay interest on February 1 and August 1. The due date of the bonds is August 1, 2017. The bonds |
| yield | 12% | On October 1, 2015, Lemon buys back | $20,000 |
| worth of the bonds for | $218,000 | (includes accrued interest). Give the entries through |
| 1-Feb-16 |
| Jun 1, 14 | Account title | Amount | |
| Account title | | Amount |
| Account title | | Amount |
|
| Maturity value of bonds payable | Amount | |
| Present value of $250,000 due in 7 periods at 6% | Formula | |
| Present value of interest payable semiannually | Formula | |
| Proceeds from sale of bonds | Formula | |
| Premium on bonds payable | Formula | |
|
| Dec 1, 14 | Account Title | Amount | |
| Account Title | Amount | |
| Account Title | | Amount |
| Note: Amortization table is semi-annual, interest rate is stated as annual value. |
|
| Dec 31, 14 | Account title | Amount | |
| Account title | Amount | |
| Account title | | Amount |
|
| Jun 1, 15 | Account Title | Amount | |
| Account Title | Amount | |
| Account Title | Amount | |
| Account Title | | Amount |
|
| Oct 1, 15 | Account title | Amount | |
| Account title | Amount | |
| Account title | | Amount |
|
| Oct 1, 15 | Account title | Amount | |
| Account title | Amount | |
| Account title | | Amount |
| Account title | | Amount |
|
| Net carrying amount of bonds redeemed - Par value | Amount | |
| Unamortized premium | Amount | |
| | Formula | |
| Reacquisition price | Amount | |
| Gain on redemption | Formula | |
|
| Dec 1, 15 | Account title | Amount | |
| Account title | Amount | |
| Account title | | Amount |
|
| Dec 31, 15 | Account title | Amount | |
| Account title | Amount | |
| Account title | | Amount |
|
| Jun 1, 16 | Account title | Amount | |
| Account title | Amount | |
| Account title | Amount | |
| Account title | | Amount |
|
| Dec 1, 16 | Account | Amount | |
| Account | Amount | |
| Account | | Amount |
|
| Schedule of Bond Discount Amortization | |
| Effective Interest Method | |
| 12% Bonds Sold to Yield 10% | |
| Date | Cash Paid | Interest Expense | Bond Premium | Carrying Value of Bonds | |
| Jun 1, 14 | | | | Amount | |
| Dec 1, 14 | Formula | Formula | Formula | Formula | |
| Jun 1, 15 | Formula | Formula | Formula | Formula | |
| Dec 1, 15 | Formula | Formula | Formula | Formula | |
| Jun 1, 16 | Formula | Formula | Formula | Formula | |
| Dec 1, 16 | Formula | Formula | Formula | Formula | |
| Jun 1, 17 | Formula | Formula | Formula | Formula | |
| Dec 1, 17 | Formula | Formula | Formula | Formula | |
| Jun 1, 18 | Formula | Formula | Formula | Formula | |
