Question
New Computer Technology, Inc., has outstanding $420,000 of its 10 percent bonds payable, dated January 1, 2016, and maturing on January 1, 2036, 20 years
| New Computer Technology, Inc., has outstanding $420,000 of its 10 percent bonds payable, dated January 1, 2016, and maturing on January 1, 2036, 20 years later. The corporation is required under the bond contract to transfer $21,000 to a sinking fund each year. The directors have also voted to restrict retained earnings by transferring $21,000 each year on January 1 over the life of the bond issue to a Retained Earnings Appropriated for Bond Retirement account. |
| 1. | Prepare entries in general journal form to record the January 1, 2016, issuance of bonds at face value, the establishment of the Bond Sinking Fund Investment account, and the appropriation of retained earnings. |
a. Record the issuance of the bonds on January 1, 2016.
| Date | General Journal | Debit | Credit |
| Jan 01-2016 |
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b. Record the annual investment to sinking fund.
| Date | General Journal | Debit | Credit |
| Jan 01-2016 |
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C. Record the annual appropriation of retained earnings for the retirement of 20 year bonds.
| Date | General Journal | Debit | Credit |
| Jan 01-2016 |
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| 2. | Show how the Bond Sinking Fund Investment account and the Retained Earnings Appropriated for Bond Retirement account would be presented on the balance sheet as of December 31, 2020. (Assume that the ending balance of the Bond Sinking Fund Investment was $105,000 and the Retained EarningsUnappropriated account was $311,210.) |
| New Computer Technology | ||
| Partial Balance Sheet | ||
| December 31, 2018 | ||
| Investment |
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| Bond sinking fund investment |
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| Stockholder Equity |
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| Retained Earnings: |
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| Retained earnings appropriated for bond retirement |
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| Unappropriated retained earning |
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| Total earning |
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| 3. | Assuming that the Bond Sinking Fund Investment account had a balance of $420,000 on January 1, 2036, give the entry in general journal form to record the retirement of the bonds and remove the appropriation for retained earnings.
a. Record retirement of bonds. |
| Date | General Journal | Debit | Credit |
| Jan 01-2036 |
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b. Record removal of appropriations of retained earnings for retirement of funds.
| Date | General Journal | Debit | Credit |
| Jan 01-2036 |
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Accounting Information Systems
Authors: Steven M. Bragg
2nd Edition
164221079X, 9781642210798
