You are an accounting intern working for SpringFit Corporation. You have recently been assigned to help one of the accountants who is doing an internal audit of the business. You will be assisting with a review of the payables issued by SpringFit Corporation. Your first task is to review the previous years journal entries, shown as follows:

Journal Entries, 20Y4

PAGE 15

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Jan. 1	Cash		1,008,960.00
2		Premium on Bonds Payable			58,960.00
3		Bonds Payable			950,000.00
4	Jun. 30	Interest Expense		18,427.00
5		Premium on Bonds Payable		2,948.00
6		Cash			21,375.00
7	Jul. 1	Cash		1,729,164.00
8		Discount on Bonds Payable		70,836.00
9		Bonds Payable			1,800,000.00
10	Oct. 1	Cash		1,100,000.00
11		Notes Payable			1,100,000.00
12	Dec. 31	Interest Expense		18,427.00
13		Premium on Bonds Payable		2,948.00
14		Cash			21,375.00
15	31	Interest Expense		16,500.00
16		Interest Payable			16,500.00
17	31	Interest Expense		37,403.00
18		Discount on Bonds Payable			5,903.00
19		Cash			31,500.00
20	31	Income Summary		90,757.00
21		Interest Expense			90,757.00

X

Bonds Payable

Review the journal entries on the SpringFit Corporation panel, then answer the following questions.

You have been asked to continue your work on the SpringFit Corporation audit. The journal entries for the current year are shown as follows:

Journal Entries, 20Y5

PAGE 23

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Jun. 30	Interest Expense		18,427.00
2		Premium on Bonds Payable		2,948.00
3		Cash			21,375.00
4	30	Interest Expense		37,403.00
5		Discount on Bonds Payable			5,903.00
6		Cash			31,500.00
7	30	Bonds Payable		1,800,000.00
8		Gain on Redemption of Bonds			41,000.00
9		Discount on Bonds Payable			59,030.00
10		Cash			1,699,970.00
11	Sep. 30	Interest Expense		49,500.00
12		Interest Payable		16,500.00
13		Notes Payable		251,451.00
14		Cash			317,451.00
15	Dec. 31	Interest Expense		12,728.00
16		Interest Payable			12,728.00
17	31	Interest Expense		18,427.00
18		Premium on Bonds Payable		2,948.00
19		Cash			21,375.00
20	31	Income Summary		136,485.00
21		Interest Expense			136,485.00
22	31	Bonds Payable		475,000.00
23		Premium on Bonds Payable		23,584.00
24		Loss on Redemption of Bonds		20,600.00
25		Cash			519,184.00

X

Final Questions

Considering the journal entries for both years, answer the following questions.

1.	What is the yearly payment amount required for the note payable? (Assume it is an installment note.)
2.	What is the interest rate on the note payable?
3.	Were the bonds in the entry on Dec. 31 of 20Y5 redeemed at maturity?
4.	You suspect there is an error in one of the bond redemption entries. Assuming that the amounts are correct, which entry is questionable? Why?
5.	Why do some bonds sell below face value?

6. Which of the following items are amortized? Check all that apply.

Redemption amount

Bonds

It depends on the face value of the bond

Future cash receipts

Contract rate of interest

Discounts

Premiums

Interest expenses