Question
Impact of a Discount Vasily Inc. sold 20-year bonds on January 1, 2017. The face value of the bonds was $100,000, and they carry a
Impact of a Discount
Vasily Inc. sold 20-year bonds on January 1, 2017. The face value of the bonds was $100,000, and they carry a 9% stated rate of interest, which is paid on December 31 of every year. Vasily received $92,340 in return for the issuance of the bonds when the market rate was 10%. Any premium or discount is amortized using the effective interest method.
Required:
1. Identify and analyze the effect of the sale of the bonds on January 1, 2017.
| Activity | |
| Accounts | |
| Statement(s) |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| fill in the blank | fill in the blank | fill in the blank | fill in the blank | fill in the blank | fill in the blank | |||||||||
| fill in the blank | fill in the blank | fill in the blank | fill in the blank | fill in the blank | fill in the blank | |||||||||
Prepare a proper balance sheet presentation for January 1, 2017.
| Vasily Inc. | |
| Balance Sheet (Partial) | |
| January 1, 2017 | |
| Liabilities | |
| $fill in the blank 54a355082047fe7_2 | |
| fill in the blank 54a355082047fe7_4 | |
| $fill in the blank 54a355082047fe7_5 | |
2. Identify and analyze the effect of the payment of interest on December 31, 2017.
| Activity | |
| Accounts | |
| Statement(s) |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. Round the amounts to the nearest whole dollar.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| fill in the blank | fill in the blank | fill in the blank | fill in the blank | fill in the blank | fill in the blank | |||||||||
Prepare a proper balance sheet presentation for December 31, 2017.
| Vasily Inc. | |
| Balance Sheet (Partial) | |
| December 31, 2017 | |
| Liabilities | |
| $fill in the blank | |
| fill in the blank | |
| $fill in the blank | |
3. Why it was necessary for Vasily to issue the bonds for only $92,340 rather than $100,000?
Because the of interest was greater than the the issuance price will have to be lower than the face value.
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Cost Accounting A Managerial Emphasis
Authors: Charles T. Horngren, Srikant M.Dater, George Foster, Madhav
13th Edition
8120335643, 136126634, 978-0136126638
