a-1

Singer Company has a line of credit with United Bank. Singer can borrow up to $400,000 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during the first three months of Year 1. Singer agreed to pay interest at an annual rate equal to 2 percent above the banks prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The interest rate is applied to the outstanding monthly balance. For example, Singer pays 6.5 percent (4.5 percent + 2 percent) annual interest on $140,000 for the month of February.

Required Provide all journal entries pertaining to Singers line of credit for the first three months of Year 1.

a-2

Diaz Company issued bonds with a face value of $180,000 on January 1, Year 1. The bonds had a stated interest rate of 7 percent and a five-year term. Interest is paid in cash annually, beginning December 31, Year 1. The bonds were issued at 98. The straight-line method is used for amortization. Required a. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, Year 1. b. Determine the amount of interest expense reported on the Year 1 income statement. c. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, Year 2. d. Determine the amount of interest expense reported on the Year 2 income statement