Accounting Bonds Problems

You must show your work in order to receive credit for this assignment Problem 1 - Bonds Issued as at a Premium - TommyToys needed financing to build a new headquarters. They decided to get the needed funds by issuing bonds. On January 1, 2020, they issued $2,500,000 of 6%, 15-year bonds, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $3,059,990. Required: 1. Prepare the January 1 journal entry to record the bonds' Issuance. 2(a) For each semiannual period, calculate the cash interest payment. 2(b) For each semiannual period, calculate the straight-line premium amortization 3. Calculate the total bond interest expense to be recognized over the bonds' life. 4. Prepare the first two years of a straight-line amortization table. 5. Prepare the journal entries to record the first two interest payments. 2. Problem 2 - Bonds issued at a discount & subsequently retired - McKeever Enterprises wanted to expand operations into Toledo, Ohio. In order to by the property required, McKeever Company issues $280,000 of 12%, 12-year bonds on January 1, 2020. The bonds sell for $272,300. Six years later, on January 1, 2026, since the company has excess funds available, McKeover retires these bonds by buying them on the open market for $293,300. All interest is accounted for and paid through December 31, 2025, the day before the purchase. The straight-line method is used to amortize any bond discount 1. What is the amount of the discount on the bonds at issuance? How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2020, through December 31, 2025? 3. What is the carrying (book) value of the bonds as of the close of business on December 31, 2025? 4. Prepare the journal entry to record the bond retirement Short Answer Questions 1 In your own words explain the difference between a bond and a share of stock. What are the obligations for the company issuing either bonds or stock? In your own words explain the advantages, if any, to issuing bonds to obtain financing instead of issuing stock. Are there any disadvantages to issuing bonds instead of stock? Explain 2