Mastery Problem: Liabilities: Bonds Payable SpringFit Corporation You are an accounting intern working for Spring Fit Corporation. You have recently been assigned to help one of the accountants who issued by SpringFit Corporation. Your first task is to review the previous year's journal entries, shown as follows: Journal Entries, Year 1 Journal Credit Date Jan. 1 Debit 1,062,060 Description Cash Premium on Bonds Payable Bonds Payable 62,060 1,000,000 Jun 30 Interest Expense Premium on Bonds Payable Cash 19,397 3,103 22,500 Jul. 1 Cash Discount on Bonds Payable Bonds Payable 1.921.280 79,720 2,000,000 Dec 31 Interest Expense Premium on Bonds Payable Cash 19,397 3.103 22.500 21 41,560 Interest Expense Discount on Bonds Payable Cash 6.560 35.000 31 Retained Earning Interest Expense B0.354 80.354 Bonds Payable 31 80,354 Retained Earnings Interest Expense 80,354 Bonds Payable Review the journal entries on the Spring Fit 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 ye 2. Which entry shows bonds issued at a contract rate lower than the market rate of interest? Choose the date. 3. 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. 6. How much interest was paid during the year on the bonds in question (5) 7. Assuming that right amortization is used for the bonds in guestion (5) what the bond life? 8. What the carrying value of the bonds in question the end of the year? Journal Entries Year 2 You have been sked to continur orken Spring Fit Corporation audit. The pura centre for the cumshot You have been asked to continue your work on the Spring Fit Corporation audit. The journal entries for the current Journal Date Description Debit Credit Jun. 30 Interest Expense 19,397 Premium on Bonds Payable 3,103 Cash 22,500 30 41,560 Interest Expense Discount on Bonds Payable Cash 6,560 35,000 30 2,000,000 Bonds Payable Gain on Redemption of Bonds Discount on Bonds Payable Cash 41,000 65,600 1,893,400 Dec. 31 Interest Expense Premium on Bonds Payable Cash 19,397 3,103 22.500 31 80,354 Retained Earnings Interest Expense 80,354 31 545,424 Bonds Payable 500.000 Premium on Bonds Payable 24,824 Loss on Redemption of Bonds 20.600 Cash Final Questions Considering the journal entries for both vears answer the following questions, 1. Were the bonds in the entry on Dec 31 of Year 2 redeemed at maturity? 2 YOL suspect there is an error one of the bond redemption entries. Assuming that the amounts are correct which 31 80,354 Retained Earnings Interest Expense 80,354 545,424 31 Bonds Payable 500,000 Premium on Bonds Payable 24,824 Loss on Redemption of Bonds 20,600 Cash Final Questions Considering the journal entries for both years, answer the following questions. 1. Were the bonds in the entry on Dec. 31 of Year 2 redeemed at maturity? 2. You suspect there is an error in one of the bond redemption entries. Assuming that the amounts are correct, which entry Why? 3. Why do some bonds sell below face value? 4. Which of the following items are amortized? a. Bonds b. Discounts c. Future cash receipts d. Redemption amount e Premium f. Contract rate of interest 9. It depends on the face value of the bond h. Interest expenses