Problem 1: Sasina Corporation has $8,000,000 of 9.5 percent, 25 - year bonds dated May 1, 2014, with interest payable on April 30 and October 31. The Company's fiscal year ends on December 31, and it uses the straight-line method to amortize bond premiums or discounts. The bonds are callable after 10 years at 103, or each $1,000 bond is convertible into 40 shares of $10 per value common stock.

REQUIRED:

1. Assume the bonds are issues at 103.5 on May 1, 2014

A. how much cash is received?

B. how much is bonds payable?

C. what is the difference between A and B called, and how much is it?

D. with regard to the bond interest payment on October 31, 2014:

I. how much cash is paid in interest?

ii. How much is the amortization?

iii. How much is interest expense?

2. Assume the bonds are issues at 96.5 on May 1, 2014

A. how much cash is received?

B. how much is bonds payable?

C. what is the difference between A and B called, and how much is it?

D. with regard to the bond interest payment on October 31, 2014:

I. how much cash is paid in interest?

ii. How much is the amortization?

iii. How much is interest expense?

3. Assume the issue price in requirement 1 and that the bonds are called and retried 10 years later.

A. how much cash will have to be paid to retire the bonds?

B. is there a gain or loss on the retirement, and if so, how much is it?

4. Assume the issue price in requirement 1 and that the bonds are called and retried 10 years later.

A. is there a gain or loss on conversion, and if so, how much is it?

B. how many shares of common stock are issued in exchange for the bonds?

C. in dollar amount, how does this transaction affect the total liabilities and the total stockholders? equity of the company? In your answer, show the effects on four accounts.

Problem 2: Yacuma Corporation issued bonds twice during 2014. The transactions were as follows: 2014 Jan. 1 Issued $2,000,000 of 9.2 percent, 10-year bonds dated January 1, 2014, with interest payable on June 30 and December 31. The bonds were sold at 98.1, resulting in an effective interest rate of 9.5 percent. Apr. 1 Issued $4,000,000 of 9.8 percent, 10-year bonds dated April 1, 2014, with interest payable on March 31 and September 30. The bonds were sold at 101, resulting in an effective interest rate of 9.5 percent. June 30 Paid semiannual interest on the January 1 issue and amortized the discount, using the effective interest method. Sept. 30 Paid semiannual interest on the April 1 issue and amortized the premium, using the effective interest method. Dec. 31 Paid semiannual interest on the January 1 issue and amortized the discount, using the effective interest method. 31 Made an end-of-year adjusting entry to accrue interest on the April 1 issue and to amortize half the premium applicable to the second interest period. 2015 Mar. 31 Paid semiannual interest on the April 1 issue and amortized the premium applicable to the second half of the second interest period. Hide 1. Prepare entries in journal form to record the bond transactions. (Round amounts to the nearest dollar.) If an amount box does not require an entry, leave it blank.

P-14-02 Name: Section: Enter the appropriate amount or item in the shaded cells. Use the drop-down lists when available. An asterisk (*) will appear next to an incorrect entry in the outlined cells. Enter all values as positive numbers. 1. Bond BasicsStraight-Line Method, Retirement, and Conversion a. Calculation of cash received: $ 8,000,000 x 103.5% b. Amount of bonds payable: = $8,280,000 $ 8,000,000 * c. Difference between a and b explained: The difference of is the $ 280,000 between a and b bond premium d. Interest components 1 Cash paid in interest 2 Amortization 3 Interest expense = = = $ $ 380,000 5,600 374,400 2. a. Calculation of cash received: $ 8,000,000 x 96.5% b. Amount of bonds payable: $ 7,720,000 $ 8,000,000 * c. Difference between a and b explained: The difference of is the $ 280,000 between a and b bond discount d. Interest components 1 Cash paid in interest 2 Amortization 3 Interest expense 3. = = = $ $ 380,000 5,600 385,600 a. Cash to retire bonds: Call amount x = b. Gain or loss calculated: Loss Carrying value = amount = 4. a. No gain or loss occurs in a bond conversion. b. Numbers of shares of common stock computed: $8,000,000 / x c. Effects of liabilities and stockholders' equity shown: Decrease in liabilities: Bonds payable Unamortized bond discount Bond carrying value Increase in stockholders' equity: Common stock Additional paid-in capital Total common stock issue amount 40 P-14-04 Name: Section: Enter the appropriate amount or item in the shaded cells. Use the drop-down lists when available. An asterisk (*) will appear next to an incorrect entry in the outlined cells. Round your answers to nearest whole dollar, if required. 1. Bonds Issued at a Discount and a PremiumEffective Interest Method 2014 Jan. 1 Cash 1,962,000 Unamortized Bond Discount 38,000 Bonds Payable Sold 9.2%, 10-year bonds at 98.1 Apr. 1 Cash 2,000,000 4,040,000 Unamortized Bond Premium Bonds Payable Sold 9.8%, 10-year bonds at 101 June 30 Bond Interest Expense Unamortized Bond Discount Cash Paid semiannual interest on 9.2%, 10-year bonds and amortized the discount Sept. 30 Bond Interest Expense Unamortized Bond Premium Cash Paid semiannual interest on 9.8%, 10-year bonds and amortized the premium Dec. 31 Bond Interest Expense Unamortized Bond Discount Cash Paid semiannual interest on 9.2%, 10-year bonds and amortized the discount 31 Bond Interest Expense Unamortized Bond Premium Interest Payable To record accrual of 3 months' interest and amortization of the premium on 9.8%, 10-year bonds 40,000 4,000,000 2015 Mar. 31 Bond Interest Expense Interest Payable Unamortized Bond Premium Cash Paid semiannual interest on 9.8%, 10-year bonds and amortized the premium for the remainder of the interest period 2. Enter as per the order, provided in the journal entries. a. Bond interest expense in 2014: June Sept. Dec. Dec. Total b. 30 30 31 31 $ 474,200 Total cash paid for 2014 bond issues: June 30 Sept. 30 Dec. 31 Total $ 380,000 P-14-04_Sol. Name: Section: SOLUTION Enter the appropriate amount or item in the shaded cells. Use the drop-down lists when available. An asterisk (*) will appear next to an incorrect entry in the outlined cells. Round your answers to nearest whole dollar, if required. 1. Bonds Issued at a Discount and a PremiumEffective Interest Method 2014 Jan. 1 Cash 1,962,000 Unamortized Bond Discount 38,000 Bonds Payable Sold 9.2%, 10-year bonds at 98.1 Apr. 1 Cash 2,000,000 4,040,000 Unamortized Bond Premium 40,000 Bonds Payable Sold 9.8%, 10-year bonds at 101 June 30 Bond Interest Expense 4,000,000 93,195 Unamortized Bond Discount 1,195 Cash Paid semiannual interest on 9.2%, 10-year bonds and amortized the discount Sept. 30 Bond Interest Expense Unamortized Bond Premium 92,000 191,900 4,100 Cash Paid semiannual interest on 9.8%, 10-year bonds and amortized the premium Dec. 31 Bond Interest Expense 196,000 93,252 Unamortized Bond Discount 1,252 Cash Paid semiannual interest on 9.2%, 10-year bonds and amortized the discount 31 Bond Interest Expense Unamortized Bond Premium Interest Payable To record accrual of 3 months' interest and amortization of the premium on 9.8%, 10-year bonds 92,000 95,853 2,147 98,000 2015 Mar. 31 Bond Interest Expense 95,853 Interest Payable 98,000 Unamortized Bond Premium 2,147 Cash Paid semiannual interest on 9.8%, 10-year bonds and amortized the premium for the remainder of the interest period 2. Enter as per the order, provided in the journal entries. a. Bond interest expense in 2014: June Sept. Dec. Dec. Total b. 30 30 31 31 $ 93,195 191,900 93,252 95,853 $ 474,200 Total cash paid for 2014 bond issues: June 30 Sept. 30 Dec. 31 Total $ 92,000 196,000 92,000 $ 380,000 196,000 P-14-02 Name: Section: Enter the appropriate amount or item in the shaded cells. Use the drop-down lists when available. An asterisk (*) will appear next to an incorrect entry in the outlined cells. Enter all values as positive numbers. 1. Bond BasicsStraight-Line Method, Retirement, and Conversion a. Calculation of cash received: $ 8,000,000 x 103.5% b. Amount of bonds payable: = $8,280,000 $ 8,000,000 * c. Difference between a and b explained: The difference of is the $ 280,000 between a and b bond premium d. Interest components 1 Cash paid in interest 2 Amortization 3 Interest expense = = = $ $ 380,000 5,600 374,400 2. a. Calculation of cash received: $ 8,000,000 x 96.5% b. Amount of bonds payable: $ 7,720,000 $ 8,000,000 * c. Difference between a and b explained: The difference of is the $ 280,000 between a and b bond discount d. Interest components 1 Cash paid in interest 2 Amortization 3 Interest expense 3. = = = $ $ 380,000 5,600 385,600 a. Cash to retire bonds: Call amount $ 80,000 * x 103.0% = $ 8,240,000 b. Gain or loss calculated: Loss Carrying value = amount = 4. a. No gain or loss occurs in a bond conversion. b. Numbers of shares of common stock computed: $8,000,000 / $1,000 x 40 c. Effects of liabilities and stockholders' equity shown: Decrease in liabilities: Bonds payable Unamortized bond discount Bond carrying value Increase $ 8,000,000 in stockholders' equity: Common stock Additional paid-in capital Total common stock issue amount $ 3,200,000 320,000