Question
Example #5, On January 1, 2019 a company issues 100 bonds, each for $1,000, for a premium, as the interest rate on the bond (stated/coupon
Example #5, On January 1, 2019 a company issues 100 bonds, each for $1,000, for a premium, as the interest rate on the bond (stated/coupon rate) is 5% and the market rate is 4%. They then used this cash to purchase an automobile for $100,000 cash. The bond is to be paid in at the end of THREE years (December 31, 2021).
Calculate the cash received from issuing bond:
Present value of maturity payment $100,000 $
Present value of interest payment ($100,000*.05=$5,000) $
Present value of cash payments $
- PREPARE THE JOURNAL ENTRIES FOR 2019:
| Date | Account Name | Debit | Credit |
| 1/1/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12/31/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Premium balance: 2,775.09-889.00=1,886.09)
- PREPARE THE JOURNAL ENTRIES FOR 2020:
| Date | Account Name | Debit | Credit |
| 12/31/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Premium balance: 1,886.09-924.56=961.53)
- PREPARE THE JOURNAL ENTRIES FOR 2021:
| Date | Account Name | Debit | Credit |
| 12/31/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Premium balance is now zero)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
