Entries for Issuing and Calling Bonds; Loss

Rushton Corp., a wholesaler of music equipment, issued $14,380,000 of 10-year, 9% callable bonds on March 1, 20Y1, at their face amount, with interest payable on March 1 and September 1. The fiscal year of the company is the calendar year.

20Y1
Mar. 1	Issued the bonds for cash at their face amount.
Sept. 1	Paid the interest on the bonds.
20Y5
Sept. 1	Called the bond issue at 103, the rate provided in the bond indenture. (Omit entry for payment of interest.)

Journalize the entries to record the above selected transactions.

Issued the bonds for cash at their face amount. If an amount box does not require an entry, leave it blank.

20Y1 Mar. 1		fill in the blank 108d4e05102cfda_2	fill in the blank 108d4e05102cfda_3
		fill in the blank 108d4e05102cfda_5	fill in the blank 108d4e05102cfda_6

Paid the interest on the bonds. If an amount box does not require an entry, leave it blank.

20Y1 Sept. 1		fill in the blank 3a2e8ffc1076fef_2	fill in the blank 3a2e8ffc1076fef_3
		fill in the blank 3a2e8ffc1076fef_5	fill in the blank 3a2e8ffc1076fef_6

Called the bond issue at 103, the rate provided in the bond indenture. (Omit entry for payment of interest.) If an amount box does not require an entry, leave it blank.

20Y5 Sept. 1		fill in the blank 183643fc2fa1034_2	fill in the blank 183643fc2fa1034_3
		fill in the blank 183643fc2fa1034_5	fill in the blank 183643fc2fa1034_6
		fill in the blank 183643fc2fa1034_8	fill in the blank 183643fc2fa1034_9

2-

Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method

Favreau Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Favreau Corporation issued $8,400,000 of 9-year, 8% bonds at a market (effective) interest rate of 7%, receiving cash of $8,953,968. Interest is payable semiannually on April 1 and October 1.

a. Journalize the entry to record the issuance of bonds on April 1. If an amount box does not require an entry, leave it blank.

		fill in the blank 05f91ff57fd4fd7_2	fill in the blank 05f91ff57fd4fd7_3
		fill in the blank 05f91ff57fd4fd7_5	fill in the blank 05f91ff57fd4fd7_6
		fill in the blank 05f91ff57fd4fd7_8	fill in the blank 05f91ff57fd4fd7_9

b. Journalize the entry to record the first interest payment on October 1 and amortization of bond premium for six months, using the straight-line method. The bond premium amortization is combined with the semiannual interest payment. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

		fill in the blank 194cdb05602b001_2	fill in the blank 194cdb05602b001_3
		fill in the blank 194cdb05602b001_5	fill in the blank 194cdb05602b001_6
		fill in the blank 194cdb05602b001_8	fill in the blank 194cdb05602b001_9

c. Why was the company able to issue the bonds for $8,953,968 rather than for the face amount of $8,400,000?

The market rate of interest is .........the contract rate of interest.

3-

Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method

On the first day of its fiscal year, Jacinto Company issued $29,600,000 of five-year, 4% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 5%, resulting in Jacinto Company receiving cash of $28,304,740.

a. Journalize the entries to record the following:

1. Issuance of the bonds.
2. First semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment.
3. Second semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment.

If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar.

1.		fill in the blank 5cbc4505e065fdd_2	fill in the blank 5cbc4505e065fdd_3
		fill in the blank 5cbc4505e065fdd_5	fill in the blank 5cbc4505e065fdd_6
		fill in the blank 5cbc4505e065fdd_8	fill in the blank 5cbc4505e065fdd_9
2.		fill in the blank 5cbc4505e065fdd_11	fill in the blank 5cbc4505e065fdd_12
		fill in the blank 5cbc4505e065fdd_14	fill in the blank 5cbc4505e065fdd_15
		fill in the blank 5cbc4505e065fdd_17	fill in the blank 5cbc4505e065fdd_18
3.		fill in the blank 5cbc4505e065fdd_20	fill in the blank 5cbc4505e065fdd_21
		fill in the blank 5cbc4505e065fdd_23	fill in the blank 5cbc4505e065fdd_24
		fill in the blank 5cbc4505e065fdd_26	fill in the blank 5cbc4505e065fdd_27

b. Determine the amount of the bond interest expense for the first year. Round your answer to the nearest dollar. $fill in the blank 73d978f77067047_1

c. Why was the company able to issue the bonds for only $28,304,740 rather than for the face amount of $29,600,000? The market rate of interest is the contract rate of interest.