ACCT 301B
Professor P. Woodward
2/3/2014
CHAPTER 14 HOMEWORK
BE 14-11 On Jan 1, 2014, Henderson Corp. redeemed $500,000 of bonds at 99. At the time of
redemption, the unamortized premium was $15,000 and unamortized bond issue cost were $5,250.
Prepare the corporation’s jourrnal entry to record the reacquisition of the bonds.
Bonds Payable ......................................... 500,000
Premium on Bonds Payable ...................... 15,000
Unamortized Bond Issue Costs ............................................. 5,250
Gain on Redemption of Bonds ............................................ 14,750
Cash................................................................................... 495,000
(500,000 x .99 = 495,000)
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E 14-3
following
(Entries for Bond Transactions) For each situation, prepare journal entries to record the
(a) The issuance of the bonds
(b) The payment of interest on July 1
(c) The accrual of interest on December 31
1. On Jan 1, 2014, Simon Company issued $200,000 of 9%, 10-year bonds at par. Interest is payable
quarterly on April 1, July 1, October 1, and January 1.
(a) 1/1/2014
Cash .................................................. 200,000
Bonds Payable...................................................... 200,000
(b) 7/1/2014
Interest Expense ................................... 4,500
Cash.......................................................................... 4,500
(200,000 x 9% x 3/12 = 4,500)
(c) 12/31/2014
Interest Expense ................................... 4,500
Interest Payable ....................................................... 4,500
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ACCT 301B
Professor P. Woodward
2/3/2014
2. On June 1, 2014, Garfunkel Company issued $100,000 of 12%, 10-year bonds dated Jan 1 at par
plus accrued interest. Interest is payable semiannually on July 1 and January 1.
(a) 6/1/2014
Cash .................................................. 105,000
Bonds Payable...................................................... 100,000
Interest Expense ...................................................... 5,000
(100,000 x 12% x 5/12 = 5,000)
(b) 7/1/2014
Interest Expense ................................... 6,000
Cash.......................................................................... 6,000
(100,000 x 12% x 6/12 = 6,000)
(c) 12/31/2014
Interest Expense ................................... 6,000
Interest Payable ....................................................... 6,000
E 14-4
(Entries for Bond Transactions – Straight-line) Celine Dion Company issued $600,000 of 10%,
20-year bonds on January 1, 2014, at 102. Interest is payable semiannually on July 1 and January 1. Dion
Company uses the straight-line method of amortization for bond premium or discount. Prepare journal
entries to record the following.
(a) The issuance of the bonds
(b) The payment of interest and the related amortization on July 1, 2014
(c) The accrual of interest and the related amortization on December 31, 2014
(a) 1/1/2014
Cash .................................................. 612,000
Bonds Payable...................................................... 600,000
Premium on Bonds Payable ................................... 12,000
(600,000 x 102% = 612,000)
(b) 7/1/2014
Interest Expense ................................. 29,700
Premium on Bonds Payable .................... 300
Cash........................................................................ 30,000
(12,000 / 40 = 300)
(600,000 x 10% x 6/12 = 30,000)
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ACCT 301B
Professor P. Woodward
(c) 12/31/2014
2/3/2014
Interest Expense ................................. 29,700
Premium on Bonds Payable .................... 300
Interest Payable ..................................................... 30,000
E 14-5
(Entries for Bond Transactions – Effective-Interest) Celine Dion Company issued $600,000 of
10%, 20-year bonds on January 1, 2014, at 102. Interest is payable semiannually on July 1 and January 1.
Dion Company uses the effective-interest method of amortization for bond premium or discount.
Assume an effective yield of 9.7705%. Prepare journal entries to record the following.
(a) The issuance of the bonds
(b) The payment of interest and the related amortization on July 1, 2014
(c) The accrual of interest and the related amortization on December 31, 2014
(a) 1/1/2014
Cash .................................................. 612,000
Bonds Payable...................................................... 600,000
Premium on Bonds Payable ................................... 12,000
(600,000 x 102% = 612,000)
(b) 7/1/2014
Interest Expense ................................. 29,898
Premium on Bonds Payable .................... 102
Cash........................................................................ 30,000
(612,000 x 9.7705% x 1/2 = 29,898)
(600,000 x 10% x 6/12 = 30,000)
(c) 12/31/2014
Interest Expense ................................. 29,893
Premium on Bonds Payable .................... 107
Interest Payable ..................................................... 30,000
((612,000-102) x 9.7705% x 1/2 = 29,893)
E 14-16
(Entries for Zero-Interest-Bearing Notes) On Jan 1, 2014, Ellen Greene Company makes the
two following acquissitions.
1. Purchases land having a fair value of $200,000 by issuing a 5-year, zero interest-bearing
promissory note in the face amount of $337,012
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ACCT 301B
Professor P. Woodward
2/3/2014
2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of
$250,000 (interest payable annually)
The company has to pay 11% interest for funds from its bank.
(a) Record the two journal entries that should be recorded by Ellen Greene Company for the two
purchases on Jan 1, 2014.
January 1, 2014
1. Land......................................................... 200,000
Discount on Notes Payable ..................... 137,012
Notes Payable ...................................................... 337,012
2. Equipment............................................... 185,674
Discount on Notes Payable ....................... 64,326
Notes Payable ...................................................... 250,000
([250,000 x .43393 = 108,482.5] +[250,000 x 6% x 5.14612 = 77,192] = 185,674)
(b) Record the interest at the end of the first year on both notes using the effective-interest
method.
1. Interest Expense ....................................... 22,000
Discount on Notes Payable .................................... 22,000
(200,000 x 11% = 22,000)
2. Interest Expense ....................................... 20,424
Notes Payable .......................................................... 5,424
Cash........................................................................ 15,000
(185,674 x 11% = 20,424)
(250,000 x 6% = 15,000)
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4
ACCT 301B
Professor P. Woodward
2/3/2014
P 14-6
(Issuance of Bonds between Interest Dates, Straight-Line, Redemption) Presented below are
selected transactions on the books of Simonson Corp.
May 1, 2014
Bonds payabable with a par value of $900,000, which are dated Jan 1, 2014, are sold at
106 plus accrued interest. They are coupon bonds, bear interest at 12% (payable
annually at Jan 1), and mature Jan 1, 2024.
Dec. 31
Adjusting entries are made to record the accrued interest on the bonds, and the
amortization of the proper amount of premium. (Use straight-line amortization)
Jan. 1, 2015
Interest on the bonds is paid.
April 1
Bonds with par value of $360,000 are called at 102 plus accrued interest, and redeemed.
(Bonds premium is to be amortized only at the end of each year)
Dec. 31
Adjusting entries are made to record the accrued interest on the bonds, and the proper
amount of premium amortized.
Prepare journal entries for the transaction above.
5/1/2014
Cash .................................................. 990,000
Bonds Payable...................................................... 900,000
Premium on Bonds Payable ................................... 54,000
Interest Expense .................................................... 36,000
(Cash = [900,000 x 106%] + [900,000 x 12% x 4/12] = 5,000)
12/31/2014
Interest Expense ............................... 108,000
Interest Payable ................................................... 108,000
(900,000 x 12% = 108,000)
Premium on Bonds Payable ............ 3,724.14
Interest Expense ................................................. 3,724.14
(54,000 x 8/116 = 3,724.14)
1/1/2015
Interest Payable................................ 108,000
Cash...................................................................... 108,000
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ACCT 301B
Professor P. Woodward
4/1/2015
2/3/2014
Bonds Payable .......................................... 360,000.00
Premium on Bonds Payable ....................... 19,551.72
Interest Expense ......................................... 10,800.00
Cash................................................................. 378,000.00
Gain on Redemption of Bonds .......................... 12,351.72
(Premium on BP: 54,000 x (360,000/900,000) x (105/116) = 19,551.72)
(Interest: 360,000 x 12% x 3/12 = 10,800)
(Cash: 360,000 x 102% + 10,800 = 378,000)
12/31/2015
Interest Expense .............................................. 64,800
Interest Payable ..................................................... 64,800
(Interest: (900,000-360,000) x 12% = 64,800)
Premium on Bonds Payble ........................... 3,910.34
Interest Expense ................................................. 3,910.34
([54,000 x 12/116 x .60]+[54,000 x 3/116 x .40] = 3,910.34)
(540,000/900,000 = .60)
(360,000/900,000 = .40)
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