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(Comprehensive Bond Problem) Prepare the journal entries related to the sale of bonds and subsequent payments on those bonds. Also prepare the year-end accrual of
(Comprehensive Bond Problem) | ||||||
Prepare the journal entries related to the sale of bonds and subsequent payments on those bonds. Also prepare the year-end accrual of interest expense. | ||||||
1. Sanford Co. sells | $500,000 | of | 10% | bonds on March 1, 2014. The | ||
bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2017. | ||||||
The bonds yield | 12% | Give the entries through December 31, 2015. | ||||
A) Prepare the Bond Discount Amortization Table | ||||||
Schedule of Bond Discount Amortization | ||||||
Effective Interest Method | ||||||
10% Bonds Sold to Yield 12% | ||||||
Amortization | Carrying | |||||
Cash | Interest | of Bond | Value | |||
Date | Paid | Interest Expense | Discount | of Bonds | ||
Mar 1, 14 | Amount | |||||
Sep 1, 14 | Formula | Formula | Formula | Formula | ||
Mar 1, 15 | Formula | Formula | Formula | Formula | ||
Sep 1, 15 | Formula | Formula | Formula | Formula | ||
Mar 1, 16 | Formula | Formula | Formula | Formula | ||
Sep 1, 16 | Formula | Formula | Formula | Formula | ||
Mar 1, 17 | Formula | Formula | Formula | Formula | ||
Sep 1, 17 | Formula | Formula | Formula | Formula | ||
B) Prepare journal entry to record issuance of the bond on March 1, 2014 | ||||||
Mar 1, 14 | Account Title | Amount | ||||
Account Title | Amount | |||||
Account Title | Amount | |||||
C) Prepare the journal entry to record the first payment of bond interest on September 1. | ||||||
Sep 1, 14 | Account Title | Amount | ||||
Account Title | Amount | |||||
Account Title | Amount | |||||
D) Prepare the journal entry to reord the accrual of interest at December 31. Assume that no prior accruals have been made. | ||||||
Dec 31, 14 | Account Title | Amount | ||||
Account Title | Amount | |||||
Account Title | Amount | |||||
Note: Amortization table is semi-annual, interest rate is stated as annual value. | ||||||
E) Prepare the journal entry for the March 1, payment of interest. Assume that no additional accruals | ||||||
have been made since December and no reversing entry was made at December. | ||||||
Mar 1, 15 | Account Title | Amount | ||||
Account Title | Amount | |||||
Account Title | Amount | |||||
Account Title | Amount | |||||
F) Prepare the journal entry to record the payment of bond interest on September 1. | ||||||
Sep 1, 15 | Account Title | Amount | ||||
Account Title | Amount | |||||
Account Title | Amount | |||||
G) Prepare the journal entry to record the accrual of interest at December 31. | ||||||
Dec 31, 15 | Account Title | Amount | ||||
Account Title | Amount | |||||
Account Title | Amount | |||||
See also tabs on payroll and goodwill |
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