Issuing Bonds at a Premium On the first day of the fiscal year, a company issues a $5,000,000, 12%, 5-year bond that pays semiannual interest of $300,000 ($5,000,000 x 12% x 1/2), receiving cash of $5,593,453. Journalize the bond issuance. If an amount box does not require an entry, leave it blank. Cash Premium on Bonds Payable Bonds Payable 5,000,000 Premium Amortization On the first day of the fiscal year, a company issues a $4,800,000, 9%, 9-year bond that pays semiannual interest of $216,000 ($4,800,000 x 9% x 1/2), receiving cash of $5,790,252. Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense V Premium on Bonds Payable Cash - V Discount Amortization On the first day of the fiscal year, a company issues a $4,900,000, 8%, 7-year bond that pays semiannual interest of $196,000 ($4,900,000 x 8% x 1/2), receiving cash of $4,195,159. Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense - V Discount on Bonds Payable 39,157 X Cash - V 196,000 Times interest earned Averill Products Inc. reported the following on the company's income statement in 20Y8 and 2019: 20Y9 20Y8 Interest expense $410,000 $380,000 Income before income tax expense 5,207,000 4,370,000 a. Determine the times interest earned ratio for 20Y8 and 2019. Round to one decimal place. 20Y9 20Y8 Times Interest Earned b. Is the change in the times interest earned ratio favorable or unfavorable? Favorable VEntries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Chin Company issued $12,400,000 of five-year, 11% 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 12%, resulting in Chin receiving cash of $11,943,617. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) 3. Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) If an amount box does not require an entry, leave it blank 1. Cash - V Discount on Bonds Payable Bonds Payable 2. Interest Expense Discount on Bonds Payable 101 0OO OOO Cash V 3. Interest Expense Discount on Bonds Payable Cash Feedback b. Determine the amount of the bond interest expense for the first year. Entries for Issuing Bonds Thomson Co. produces and distributes semiconductors for use by computer manufacturers. Thomson issued $900,000 of 10-year, 8% bonds on May 1 of the current year at face value, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. May 1 Issued the bonds for cash at their face amount. Nov. 1 Paid the interest on the bonds Dec. 31 Recorded accrued interest for two months. Journalize the entries to record the above selected transactions for the current year. If an amount box does not require an entry, leave it blank. May 1 Cash Bonds Payable Nov. 1 Interest Expense 10 00 00 Cash V Dec. 31 Interest Expense Interest Payable VEntries for Issuing and Calling Bonds; Loss Hoover Corp., a wholesaler of music equipment, issued $5,660,000 of 25-year, 8% callable bonds on March 1, 20Y2, at their face amount, with interest payable on March 1 and September 1. The fiscal year of the company is the calendar year. 20Y2 Mar. 1 Issued the bonds for cash at their face amount. Sept. 1 Paid the interest on the bonds. 20Y4 Sept. 1 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. Journalize the entries to record the above selected transactions. Issued the bonds for cash at their face amount. 20Y2 Mar. 1 Cash Bonds Payable Feedback Paid the interest on the bonds. 20Y2 Sept. 1 Interest Expense Cash 28 Feedback Called the bond issue at 103, the rate provided in the bond indenture. (Omit entry for payment of interest.) 20Y4 Sept. 1 Bonds Payable Loss on Redemption of Bonds Cash Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, 20Y1, Smiley issued $5,000,000 of 10-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of $5,339,759. Interest is payable semiannually on April 1 and October 1. a. Journalize the entry to record the issuance of bonds on April 1, 20Y1. If an amount box does not require an entry, leave it blank. Cash Premium on Bonds Payable Bonds Payable V Feedback . Journalize the entry to record the first interest payment on October 1, 20Y1, and amortization of bond premium for six months, using the straight-line method. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense Premium on Bonds Payable CashPresent Value of Amounts Due Assume that you are going to receive $710,000 in 10 years. The current market rate of interest is 12%. a. Using the present value of $1 table in Exhibit 5, determine the present value of this amount compounded annually. Round to the nearest whole dollar. $ b. Why is the present value less than the $710,000 to be received in the future? The present value is less due to the compounding of interest V over the 10 years. Entries for Issuing and Calling Bonds; Gain Mia Breen Corp. produces and sells wind-energy-driven engines. To finance its operations, Mia Breen issued $895,000 of 10-year, 8% callable bonds on May 1, 20Y5, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions: 20Y5 May 1 Issued the bonds for cash at their face amount. Nov. 1 Paid the interest on the bonds. 20YS Nov. 1 Called the bond issue at 96, 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. Issued the bonds for cash at their face amount. 20Y5 May 1 Cash Bonds Payable Feedback Paid the interest on the bonds. 20Y5 Nov. 1 Interest Expense Cash V Feedback Called the bond issue at 96, the rate provided in the bond indenture. (Omit entry for payment of interest.) 2019 Nov. 1 Bonds Payable Gain on Redemption of Bonds CashPresent Value of Bonds Payable; Premium Moss Co. issued $560,000 of four-year, 13% bands, with interest payable semiannually, at a market (effective) interest rate of 12%. Determine the present value of the bonds payable, using the present value tables in Exhibit 5 and Exhibit 7. Round to the nearest dollar. C Present Value of n Al'll'llliKV On January 1, you win $720,000 in the state lottery. The $720,000 prize will be paid ln equal installments of $90,000 over 3 years. The payment: will he made on December 31 of each year, beginning on December 31. If the current interest rate is 7%. deterrnlne the present value of your winnings. Use the present value tables In Exhibit T. Round to the nearest whole dollar. 4:]: Present Value of an Annuity Determine the present value of $200,000 to be received at the end of each of four years, using an interest rate of 5.5%, compounded annually, as follows: a. By successive computations, using the present value of $1 table in Exhibit 5. Round to the nearest whole dollar. First year 4:] gm\"... [:1 Third Year [:] my... [:1 Total present value 4:] b. By using the present value of an annuity of $1 table in Exhibit 7. Round to the nearest whole dollar. 4: 1:. why is the present value of the four $200,000 cash receipts less than the $800,000 to be received in the future? The present value is less due to 'the comEounding of interest '1 J over the 4 years. Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued $26,000,000 of 5-year, 8% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 10%, resulting in Ebert receiving cash of $23,992,270. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Cash Discount on Bonds Payable Bonds Payable Feedback 2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense Discount on Bonds Payable Cash Feedback 3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense V Discount on Bonds Payable Cash - V SE b. Compute the amount of the bond interest expense for the first year. Round to the nearest dollar. Annual interest paid Discount amortized Interest expense for first yearBond Premium, Entries for Bonds Payable Transactions Rodgers Corporation produces and sells football equipment. On July 1, 20Y1, Rodgers issued $89,200,000 of 10-year, 13% bonds at a market (effective) interest rate of 12%, receiving cash of $94,315,156. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Required: For all journal entries, if an amount box does not require an entry, leave it blank. 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, 20Y1. Cash Premium on Bonds Payable Bonds Payable V Feedback 2. Journalize the entries to record the following: a. The first semiannual interest payment on December 31, 20Y1, and the amortization of the bond premium, using the straight-line method. Round to the nearest dollar. Interest Expense V Premium on Bonds Payable Cash - V EE Feedback b. The interest payment on June 30, 20Y2, and the amortization of the bond premium, using the straight-line method. Round to the nearest dollar. Interest Expense Premium on Bonds Payable Cash - V 3. Determine the total interest expense for 20Y1. Round to the nearest dollar. 4. Will the bond proceeds always be greater than the face amount of the bonds when the contract rate is greater than the market rate of interest? Yes 5. Compute the price of $94,315,156 received for the bonds by using the present value tables in Appendix A. Round your PV values to 5 decimal places and the final answers to the nearest dollar. Your total may vary slightly from the price given due to rounding differences Present value of the face amount Present value of the semi-annual interest payments Price received for the bondsBond Premium, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Premium Rodgers Corporation produces and sells football equipment. On July 1, 20Y1, Rodgers issued $60,000,000 of 20-year, 14% bonds at a market (effective) interest rate of 12%, receiving cash of $69,013,200. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Required: For all journal entries, if an amount box does not require an entry, leave it blank. 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds. 20Y1 July 1 Cash Premium on Bonds Payable Bonds Payable EE Feedback 2. Journalize the entries to record the following: a. The first semiannual interest payment on December 31, 20Y1, and the amortization of the bond premium, using the interest method. Round to the nearest dollar. 20Y1 Dec. 31 Interest Expense Premium on Bonds Payable Cash SE Feedback b. The interest payment on June 30, 20Y2, and the amortization of the bond premium, using the interest method. Round to the nearest dollar. 20Y2 June 30 Interest Expense Premium on Bonds Payable Cash - V Bond Discount, Entries for Bonds Payable Transactions, Interest Method of Amortizing Bond Discount On July 1, 20Y1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $27,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $21,601,620. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Required: For all journal entries, if an amount box does not require an entry, leave it blank. 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds. 20Y1 July 1 Cash Discount on Bonds Payable - Bonds Payable EE Feedback 2. Journalize the entries to record the following: a. The first semiannual interest payment on December 31, 20Y1, and the amortization of the bond discount, using the interest method. Round to the nearest dollar. 20Y1 Dec. 31 Interest Expense Discount on Bonds Payable Cash Feedback b. The interest payment on June 30, 20Y2, and the amortization of the bond discount, using the interest method. Round to the nearest dollar. 20Y2 June 30 Interest Expense Discount on Bonds Payable Cash EEPresent value of an annuity On January 1, you win $31,500,000 in the state lottery. The $31,500,000 prize will be paid in equal installments of $5,250,000 over six years. The payments will be made on December 31 of each year, beginning on December 31 of this year. The current interest rate is 4.5%. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below. Open spreadsheet Determine the present value of your winnings. Round your answer to the nearest dollar. $ B14 fx A B C D Present value of an annuity UAWNH DATA Sum of prize $31,500,000 Annual payment $5,250,000 6 Number of years 6 7 Interest rate 4.5% 8 Date of win January 1 9 Date of payments December 31 of each year 10 Using formulas and cell references, perform the required analysis, and input your answer into the Amount column. Transfer the numeric result for the green entry cell 11 (B14) into the appropriate field in CNOWv2 for grading. 12 13 Amount Formula 14 PV of annual payments 15 16Present value of bonds payable; discount Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder issued $27,000,000 of five-year, 7% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below. X Open spreadsheet Determine the present value of the bonds payable. Round your answer to the nearest dollar. B13 v fx A B C C 1 Present value of bonds payable; discount AWN DATA Face amount of bonds $27,000,000 UT Contract rate of interest 7% 6 Term of bonds, years 5 Market rate of interest 9% 8 Interest payment Semiannual 9 Using formulas and cell references, perform the required analysis, and input your answer into the Amount column. Transfer the numeric result for the green entry 10 cell (B13) into the appropriate field in CNOWv2 for grading. 11 12 Amount Formula 13 PV of bonds 14 15Compute bond proceeds, amortizing premium by interest method, and interest expense Ware Co. produces and sells motorcycle parts. On the first day of its fiscal year, Ware issued $43,000,000 of four-year, 11% bonds at a market (effective) interest rate of 8%, with interest payable semiannually. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. X Open spreadsheet Compute the following: a. The amount of cash proceeds from the sale of the bonds. Round your answer to the nearest dollar. $ b. The amount of premium to be amortized for the first semiannual interest payment period, using the interest method. Round your answer to the nearest dollar. c. The amount of premium to be amortized for the second semiannual interest payment period, using the interest method. Round your answer to the nearest dollar. d. The amount of the bond interest expense for the first year. Round your answer to the nearest dollar. A D Compute bond proceeds, amortizing premium by interest method, and interest expense DATA Face amount of bonds $43,000,000 Contract rate of interest 11% Term of bonds, years 4 Market rate of interest 8% Interest payment Semiannual Using formulas and cell references, perform the required analysis, and input your answers into the Amounts column. Transfer the numeric results for the green entry cells (C13:C16) into the appropriate fields in CNOWv2 for 10 grading. 11 12 Amounts Formulas 13 a. PV of cash proceeds 14 b. Premium amortized for the 1st interest payment period 15 c. Premium amortized for the 2nd interest payment period 16 d. Interest expense for the 1st year 17Compute bond proceeds, amortizing discount by interest method, and interest expense Boyd Co. produces and sells aviation equipment. On the first day of its fiscal year, Boyd issued $73,000,000 of four-year, 7% bonds at a market (effective) interest rate of 11%, with interest payable semiannually. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Compute the following: a. The amount of cash proceeds from the sale of the bonds. Round your answer to the nearest dollar. b. The amount of discount to be amortized for the first semiannual interest payment period, using the interest method. Round your answer to the nearest dollar. c. The amount of discount to be amortized for the second semiannual interest payment period, using the interest method. Round your answer to the nearest dollar. d. The amount of the bond interest expense for the first year. Round your answer to the nearest dollar. $ A B C D 1 Compute bond proceeds, amortizing discount by interest method, and interest expense DATA IQUIAWN Face amount of bonds $73,000,000 Contract rate of interest 7% Term of bonds, years Market rate of interest 11% Interest payment Semiannual Using formulas and cell references, perform the requirea analysis, and Input your answers Into the Amount column. Transfer the numeric results for the green entry cells (C13:C16) into the appropriate fields in CNOWv2 for 10 aradina. 11 12 Amount Formulas 13 a. PV of cash proceeds 14 b. Discount amortized for the 1st interest payment period 15 c. Discount amortized for the 2nd interest payment period 16 d. Interest expense for the 1st year 17 18Mastery Problem: Liabilities: Bonds Payable SpringFit Corporation You are an accounting intern working for SpringFit Corporation. You have recently been assigned to help one of the accountants who is doing an internal audit of the business. You will be assisting with a review of the payables issued by SpringFit Corporation. Your first task is to review the previous year's journal entries, shown as follows: Journal Entries, Year 1 Journal Date Description Debit Credit Jan. 1 Cash ,004,720 Premium on Bonds Payable 58,720 Bonds Payable 946,000 Jun. 30 Interest Expense 18,349 Premium on Bonds Payable 2,936 Cash 21,285 Jul. 1 Cash 1,921,280 Discount on Bonds Payable 78,720 Bonds Payable 2,000,000 Dec. 31 Interest Expense 18,349 Premium on Bonds Payable 2,936 Cash 21,285 31 Interest Expense 41,560 Discount on Bonds Payable 6,560 Cash 35,000 31 Retained Earnings 78,258 Interest Expense 78,258 Bonds Payable Review the journal entries on the SpringFit Corporation panel, then answer the following questions. 1. Assuming that no bonds had been issued prior to Year 1, how many different bonds appear in the journal entries for this year? 2 V 2. Which entry shows bonds issued at a contract rate lower than the market rate of interest? Choose the date. July 1 . How much interest was paid during the year on the bonds in question (2)? 4. What is the carrying amount of the bonds in question (2) at the end of the year? 5. Which entry shows bonds that sold for more than their face amount? Choose the date. Jan. 1 6. How much interest was paid during the year on the bonds in question (5)? 7. Assuming that straight-line amortization is used for the bonds in question (5), what is the bond life? 10 years 8. What is the carrying value of the bonds in question (5) at the end of the year