P10-10A - Homework Solutions - Assignment Of Bond Payments And Interest - Financial Accounting PDF

Preview

Summary

Homework Solutions...

Description

Chapter 10 P10-10A On January 1, 2017, Lachte Corporation issued $1,800,000 face value, 5%, 10-year bonds at $1,667,518. This price resulted in an effective-interest rate of 6% on the bonds. Lachte uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January 1. (a) Prepare the journal entry to record the issuance of the bonds on January 1, 2017 Jan 1. Cash 1,667,518 Discount on Bonds 132,482 Bonds Payable 1,800,000 (b) Prepare an amortization table through December 31, 2019 (three interest periods) for this bond issue Bond interest expense = carrying value of the bonds(beginning) * effective interest rate Bond interest paid = face value of bonds * contractual interest rate Amortization amount = bond interest expense – bond interest paid Interest Interest to be Interest to be Discount Unamortized Bond period paid recorded amortization discount carrying value 1 90,000 100,051.08 10,051.08 122,430.92 1,677,569.08 2 90,000 100,654.145 10,654.145 111,776.77 1,688,223.23 3 90,000 101,293.994 11,293.99 10,482.78 1,789,517.22 (c) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2017 Dec 31. Interest Expense 100,051.08 Discount on Bonds Payable 10,051.08 Interest Payable 90,000 (d) Prepare the journal entry to record the payment of interest on January 1, 2018 Jan 1. Interest Expense 181,064.15 Discount on Bonds Payable 10,654.15 Interest Payable 180,000 (e) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2018...