Problem #6

Part 1

The following selected transactions relate to liabilities of Chicago Glass Corporation for 2018. Chicago's fiscal year ends on December 31.

1. On January 15, Chicago received $7,000 from Henry Construction toward the purchase of $66,000 of plate glass to be delivered on February 6.

2. On February 3, Chicago received $6,700 of refundable deposits relating to containers used to transport glass components.

3. On February 6, Chicago delivered the plate glass to Henry Construction and received the balance of the purchase price.

4. First quarter credit sales totaled $700,000. The state sales tax rate is 4% and the local sales tax rate is 2%.

Prepare journal entries for the above transactions.

Part 2

On May 1, 2018, Green Corporation issued $1,000,000 of 12% bonds, dated January 1, 2018, for $975,000 plus accrued interest. The bonds mature on December 31, 2032, and pay interest semiannually on June 30 and December 31. Green's fiscal year ends on December 31 each year.

Determine the amount of accrued interest that was included in the proceeds received from the bond sale.

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Prepare the journal entry for the issuance of the bonds.

Problem #7

On January 1, 2018, Whittington Stoves issued $800 million of its 8% bonds for $736 million. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. Whittington records interest at the effective rate and elected the option to report these bonds at their fair value. One million dollars of the increase in fair value was due to a change in the general (risk-free) rate of interest.

On December 31, 2018, the fair value of the bonds was $752 million as determined by their market value on the NYSE.

a) Prepare the journal entry to record interest on June 30, 2018 (the first interest payment).

b) Prepare the journal entry to record interest on December 31, 2018 (the second interest payment).

c) Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2018, balance sheet.

Show work here!

Record All Three Journal Entries Here!