On July 1, Year 1, Khatri Industries Inc. issued $18,000,000 of 10-year, 5% bonds at a market (effective) interest rate of 6%, receiving cash of $16,661,102. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Required:
Instructions On July 1, Year 1, Khatri Industries Inc. issued $18,000,000 of 10-year, 5% bonds at a market (effective) interest rate of 6%, receiving cash of $16,661,102. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Required: 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1.* 2. Journalize the entries to record the following:* a. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. Round to the nearest dollar. b. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method. Round to the nearest dollar. 3. Determine the total interest expense for Year 1. 4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest? 5. Compute the price of $16,661,102 received for the bonds by using the tables shown in Present Value Tables. Round to the nearest dollar. *Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered. Journal Shaded cells have feedback. 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered. How does grading work? PAGE 10 JOURNAL Score: 37/37 ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 Jul. 1 Cash 16,661,102.00 1 2 Discount on Bonds Payable 1,338,898.00 1 3 Bonds Payable 18,000,000.00 1 Points: 7/7 2a. Journalize the entry to record the first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. Round to the nearest dollar. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW joumals will automatically indent a credit entry when a credit amount is entered. How does grading work? PAGE 10 JOURNAL Score: 27/37 ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 Dec. 31 Interest Expense 499,833.00 1 2 Discount on Bonds Payable 49,833.00 1 3 Interest Payable 450,000.00 Points 5.11/7 2b. Journalize the entry to record the interest payment on June 30. Year 2, and the amortization of the bond discount, using the straight-line method. Round to the nearest dollar. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered. How does grading work? PAGE 10 JOURNAL Score: 27/37 ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 Jun. 30 Interest Expense 501,328.00 1 2 Discount on Bonds Payable 51,328.00 1 3 Interest Payable 450,000.00 1 Points: 5.11/7 Final Questions Shaded cells have feedback. 3. Determine the total interest expense for Year 1. $499,833 X Points: 071 4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest? O Yes O No Points 0/1 5. Compute the price of $16,661,102 received for the bonds by using the tables shown in Present Value Tables. Round to the nearest dollar. Present value of the face amount $ Present value of the semiannual interest payments Price received for the bonds $ Points: 073
