Analyzing and Reporting Financial Statement Effects of Bond Transactions

On January 1, 2016, Hutton Corp. issued $250,000 of 15-year, 20% bonds payable for $275,684, yielding an effective interest rate of 18%. Interest is payable semiannually on June 30 and December 31.

Required a. Show computations to confirm the issue price of $275,684. (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 premium amortization on June 30, 2016, and semiannual interest payment and premium amortization on December 31, 2016. Use the effective interest rate method. (Round your answers to the nearest dollar.)

General Journal
Date	Description	Debit	Credit
1/1/16	Answer

Answer	Answer
	Answer

Answer	Answer
	Bonds payable	Answer	Answer
6/30/16	Interest expense	Answer	Answer
	Answer

Answer	Answer
	Answer

Answer	Answer
12/31/16	Interest expense	Answer	Answer
	Answer

Answer	Answer
	Answer

Answer

Answer

c. Post the journal entries from part b to their respective T-accounts.

Cash (A)
01/01/16	Answer	Answer
06/30/16	Answer	Answer
12/31/16	Answer	Answer

Bonds Payable (L)
01/01/16	Answer	Answer
06/30/16	Answer	Answer
12/31/16	Answer	Answer

Interest Expense (E)
01/01/16	Answer	Answer
06/30/16	Answer	Answer
12/31/16	Answer	Answer

Bond Premium (L)
01/01/16	Answer	Answer
06/30/16	Answer	Answer
12/31/16	Answer	Answer

d. Record each of the transactions from part b in the financial statement effects template.

Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contrib. Capital	+	Earned Capital
1/1/16 Issue bonds at a premium	$Answer	+	$Answer	=	$250,000	+	$Answer	+	$Answer
	Answer	+	Answer	=	Answer	+	Answer	+	Answer
6/30/16 Interest payment on bonds	Answer	+	Answer	=	Answer	+	Answer	+	Answer
12/31/16 Interest payment on bonds	Answer