60.1K

Verified Solution

Link Copied!

You have recently been assigned to help one of the accountants who is doing an internal audit of the business. You will be assisting with a review of the payables issued by SpringFit Corporation. Your first task is to review the previous years journal entries, shown as follows:

Journal Entries, 20Y4

PAGE 15

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Jan. 1	Cash		1,008,960.00		?
2		Premium on Bonds Payable			58,960.00		?
3		Bonds Payable			950,000.00		?
4	Jun. 30	Interest Expense		18,427.00				?
5		Premium on Bonds Payable		2,948.00			?
6		Cash			21,375.00	?
7	Jul. 1	Cash		1,921,280.00		?
8		Discount on Bonds Payable		78,720.00			?
9		Bonds Payable			2,000,000.00		?
10	Oct. 1	Cash		1,100,000.00		?
11		Notes Payable			1,100,000.00		?
12	Dec. 31	Interest Expense		18,427.00				?
13		Premium on Bonds Payable		2,948.00			?
14		Cash			21,375.00	?
15	31	Interest Expense		16,500.00				?
16		Interest Payable			16,500.00		?
17	31	Interest Expense		41,560.00				?
18		Discount on Bonds Payable			6,560.00		?
19		Cash			35,000.00	?
20	31	Income Summary		94,914.00				?
21		Interest Expense			94,914.00			?

Journal Entries, 20Y5

PAGE 23

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Jun. 30	Interest Expense		18,427.00				?
2		Premium on Bonds Payable		2,948.00			?
3		Cash			21,375.00	?
4	30	Interest Expense		41,560.00				?
5		Discount on Bonds Payable			6,560.00		?
6		Cash			35,000.00	?
7	30	Bonds Payable		2,000,000.00			?
8		Gain on Redemption of Bonds			41,000.00			?
9		Discount on Bonds Payable			65,600.00		?
10		Cash			1,893,400.00	?
11	Sep. 30	Interest Expense		49,500.00				?
12		Interest Payable		16,500.00			?
13		Notes Payable		251,451.00			?
14		Cash			317,451.00	?
15	Dec. 31	Interest Expense		12,728.00				?
16		Interest Payable			12,728.00		?
17	31	Interest Expense		18,427.00				?
18		Premium on Bonds Payable		2,948.00			?
19		Cash			21,375.00	?
20	31	Income Summary		140,642.00				?
21		Interest Expense			140,642.00			?
22	31	Bonds Payable		475,000.00			?
23		Premium on Bonds Payable		23,584.00			?
24		Loss on Redemption of Bonds		20,600.00				?
25		Cash			519,184.00	?

Considering the journal entries for both years, answer the following questions.

1.	What is the yearly payment amount required for the note payable? (Assume it is an installment note.)
2.	What is the interest rate on the note payable?
3.	Were the bonds in the entry on Dec. 31 of 20Y5 redeemed at maturity?
4.	You suspect there is an error in one of the bond redemption entries. Assuming that the amounts are correct, which entry is questionable? Why?
5.	Why do some bonds sell below face value?

6. Which of the following items are amortized? Check all that apply.

Discounts

Premiums

Contract rate of interest

Interest expenses

It depends on the face value of the bond

Bonds

Future cash receipts

Redemption amount

Answer & Explanation Solved by verified expert

See Answer