Question
Analyzing and Reporting Financial Statement Effects of Bond Transactions On January 1, 2016, Trueman Corp. issued $600,000 of 20-year, 11% bonds for $554,860, yielding a
Analyzing and Reporting Financial Statement Effects of Bond Transactions
On January 1, 2016, Trueman Corp. issued $600,000 of 20-year, 11% bonds for $554,860, yielding a market (yield) rate of 12%. Interest is payable semiannually on June 30 and December 31.
Required
a. Confirm the bond issue price.
(Use a calculator or Excel for your calculations. Round your answers to the nearest dollar.)
Present value of principal repayment$Answer
Present value of interest payments$Answer
Selling price of bonds$Answer
b. Prepare journal entries to record the bond issuance, semiannual interest payment and discount amortization on June 30, 2016, and semiannual interest payment and discount amortization on December 31, 2016. Use the effective interest rate method.
(Round your answers to the nearest dollar.)
General JournalDateDescriptionDebitCredit01/01/16CashAnswer
Answer
Answer
CashBonds payableBond premiumBond discountInterest expense
Answer
Answer
Answer
CashBonds payableBond premiumBond discountInterest expense
Answer
Answer
6/30/16Answer
CashBonds payableBond premiumBond discountInterest expense
Answer
Answer
Answer
CashBonds payableBond premiumBond discountInterest expense
Answer
Answer
CashAnswer
Answer
12/31/16Answer
CashBonds payableBond premiumBond discountInterest expenseAnswer
Answer
Answer
CashBonds payableBond premiumBond discountInterest expenseAnswer
Answer
CashAnswer
Answer
c. Post the journal entries from part b to their respective T-accounts.
Cash (A)01/01/16Answer
Answer
06/30/16Answer
Answer
12/31/16Answer
Answer
Bonds Payable (L)01/01/16Answer
Answer
06/30/16Answer
Answer
12/31/16Answer
Answer
Interest Expense (E)01/01/16Answer
Answer
06/30/16Answer
Answer
12/31/16Answer
Answer
Bond Discount (XL)01/01/16Answer
Answer
06/30/16Answer
Answer
12/31/16Answer
Answer
d. Trueman elected to report these bonds in its financial statements at fair value. On December 31, 2016, these bonds were listed in the bond market at a price of 101 (or 101% of par value). What entry is required to adjust the reported value of these bonds to fair value?
DateDescriptionDebitCredit12/31/2016Loss due to adjustment of bonds to fair valueAnswer
Answer
Fair value adjustmentAnswer
Answer
e. table summarizing the effect of these bonds on earnings for 2016.
Coupon payments$Answer
Discount amortizationAnswer
Total interest expenseAnswer
Fair value adjustment (loss)Answer
Total effect on income (deduction)$Answer
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Rockford Practice Set To Accompany Intermediate Accounting
Authors: Donald E. Kieso
16th Edition
1119287936, 9781119287933
