Problem 10-4B Straight-Line: Amortization of bond discount P2

Gomez issues $240,000 of 6% 4 -year bonds dated January 1, 2021, that pay interest semiannually on June 30 and December 31. They are issued at $198,494 when the market rate is 8%.

instruction:

1. Make all of the journal entries and post to the T-accounts for the life of the bonds
2. Show the carrying value of the bonds each year

Bonds issued at a Discount

• Contract interest rate
• Investors can get a better interest rate somewhere else, so we give them a discount.
• The company (borrower) gets less money now than they have to pay back at maturity.

• Problem 10-3B Straight-Line: Amortization of bond premium P3

• Ripkin Company issues 9%, five-year bonds dated January 1, 2021, with a $320,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $332,988. Their annual market rate is 8% on the issue date.

  1. Make all of the journal entries and post to the T-accounts for the life of the bonds
  2. Show the carrying value of the bonds each year

  14 Bonds issued at a Premium

  • Contract interest rate > Market interest rate
  • Investors can get a better rate with our bonds than in the market, so we charge them more.
  • The company (borrower) gets more money now than they have to pay back at maturity.

Problem 10-4B Straight-Line: Amortization of bond discount Gomez issues $240,000 of 6%4-year bonds dated January 1, 2021, that pay interest semiannually on June 30 and December 31 . They are issued at $198,494 when the market rate is 8%. 19 Bonds Payable (tace value) 20 Annual interest rate 21 Annual interest expense 221/2 year 23 Semi-annual interest payment $0 27 Less: Selling price of bonds 28 Discount on Bonds Payable $0 Face bigger than selling price 29 Divided by number of interest payments \begin{tabular}{|l|l|l|l|} \hline 34 & & \\ \hline 35 & 01/01/21 & Cash \\ \hline \end{tabular} Discount on Bonds Payable Bonds Payable Record issuance of bonds at a discount \begin{tabular}{|l|l|l|} \hline 76 & \\ \hline 77 & 06/30/24 Bond Interest Expense \\ \hline \end{tabular} Discount on Bonds Payable Cash Payment 7 Record semi-annual interest expense 12/31/24 Bond Interest Expense Discount on Bonds Payable Cash Record semi-annual interest expense 01/01/25 Bonds Payable Cash Pay bond principal at maturity T-Accounts: - Balance of cash account is not calculated here CARRYING VALUE Problem 10-3B Straight-Line: Amortization of bond premium \& P3 Ripkin Company issues 9%, five-year bonds dated January 1,2021 , with a $320,000 par value. The bonds pay interest on June 30 and December 31 and are issued at a price of $332,988. Their annual market rate is 8% on the issue date. 20 Calculations: 22 Bonds Payable (face value) 23 Annual interest rate 24 Annual interest expense 251/2 year 26 Semi-annual interest payment $0 paid over 5 years in 10 payments 30 Less: Face value of bonds 31 Premium on Bonds Payable 32 Divided by number of interest payments 33 Premium to amortize per period HDIV/O! Journal entries: 01/01/21 Cash Premium on Bonds Payable Premium on Bonds Payable Bonds Payable Record issuance of bonds at a premium 06/30/21 Bond Interest Expense Premium on Bonds Payable Cash Payment 1 Record semi-annual interest expense 12/31/21 Bond Interest Expense Premium on Bonds Payable Cash Payment 2 Record semi-annual interest expense 06/30/22 Bond Interest Expense Premium on Bonds Payable Ready \&x Accessibility: Investigate 7412/31/23 Bond Interest Expense Premium on Bonds Payable Cash Payment 6 Record semi-annual interest expense 06/30/24 Bond Interest Expense Premium on Bonds Payable Cash Payment 7 Record semi-annual interest expense 12/31/24 Bond Interest Expense Premium on Bonds Payable Cash Payment 8 Record semi-annual interest expense 06/30/25 Bond Interest Expense Premium on Bonds Payable T-Accounts: - Balance of cosh account is not calculated here CARRYING VALUE \begin{tabular}{|c|c|c|c|} \hline \multicolumn{1}{|c|}{ CARRYING VALUE } \\ & Bonds & Premium on & Carrying \\ \hline 01/01/21 & - & - & - \\ \hline 06/30/21 & - & - & - \\ \hline 12/31/21 & - & - & - \\ \hline 06/30/22 & - & - & - \\ \hline 12/31/22 & - & - & - \\ 06/30/23 & - & - & - \\ 12/31/23 & - & - & - \\ \hline 06/30/24 & - & - & - \\ \hline 12/31/24 & - & - & - \\ \hline 06/30/25 & - & - & - \\ \hline 12/31/25 & - & - & - \\ \hline \end{tabular}