Issuance of a Bond at Face Value

On January 1, 2014, Whitefeather Industries issued 1,600 $1,000 face value bonds. The bonds have a(n) five-year life and pay interest at the rate of 8%. Interest is paid semiannually on July 1 and January 1. The market rate of interest on January 1 was 8%. Use the present value tables that may be found by clicking on the Present Value button.

Required:

1. Calculate the issue price of the bonds and record the issuance of the bonds on January 1, 2014.

Round your answer to the nearest $1,000. For example, $296,987 would be entered as $297,000. $

Identify and analyze the effect of the issuance of the bonds on January 1, 2014.

Activity	- Select your answer -OperatingInvestingFinancingInvesting and FinancingCorrect 1 of Item 2
Accounts	- Select your answer -Cash Increase, Bonds Payable IncreaseCash Increase, Bonds Payable DecreaseCash Decrease, Bonds Payable IncreaseCash Decrease, Bonds Payable DecreaseCorrect 2 of Item 2
Statement(s)	- Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 2

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.

Balance Sheet

Income Statement

Assets

=

Liabilities

+

Stockholders' Equity

Revenues

Expenses

=

Net Income

- Select your answer -Accounts ReceivableBonds PayableCashInvestment in BondsRestricted CashNo EntryCorrect 1 of Item 3

- Select your answer -Accounts PayableBonds PayableCashFinancing RevenueStockholders EquityNo EntryCorrect 3 of Item 3

- Select your answer -Accounts PayableBonds PayableCashFinancing RevenueStockholders EquityNo EntryCorrect 6 of Item 3

- Select your answer -Accounts ReceivableBonds PayableCashInvestment in BondsRestricted CashNo EntryCorrect 8 of Item 3

2. How would the issue price have been affected if the market rate of interest had been higher than 8%. - Select your answer -Bonds would be issued at a discount.Bonds would be issued at a premium.Bonds would be issued at face value.Indeterminable without more information.Correct 1 of Item 4

3. Identify and analyze the effect of the payment of interest on July 1, 2014.

Activity	- Select your answer -OperatingInvestingFinancingInvesting and FinancingCorrect 1 of Item 5
Accounts	- Select your answer -Cash Increase, Interest Expense IncreaseCash Increase, Interest Expense DecreaseCash Decrease, Interest Expense IncreaseCash Decrease, Interest Expense DecreaseCorrect 2 of Item 5
Statement(s)	- Select your answer -Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementCorrect 3 of Item 5

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.

Balance Sheet

Income Statement

Assets

=

Liabilities

+

Stockholders' Equity

Revenues

Expenses

=

Net Income

- Select your answer -Bond ExpenseBond PayableCashInterest ExpenseInterest PayableNo EntryCorrect 1 of Item 6

- Select your answer -Accounts PayableBond ExpenseCashInterest ExpenseInterest PayableNo EntryCorrect 3 of Item 6

- Select your answer -Accounts PayableBond ExpenseCashInterest ExpenseInterest PayableNo EntryCorrect 6 of Item 6

- Select your answer -Bond ExpenseBond PayableCashInterest ExpenseInterest PayableNo EntryCorrect 8 of Item 6

4. Calculate the amount of interest accrued on December 31, 2014. If required, round your answer to the nearest dollar. $