Reporting Bonds Using the Fair Value Option Mitchell Inc. issued 24, 6%, $1,000 bonds on January 1, 2020, for $23,360. The bonds pay cash interest semiannually each June 30, and December 31, and were issued to yield 7%. The bonds mature December 31, 2022, and the company uses the effective interest method to amortize bond discounts or premiums. On January 1, 2020, Mitchell Inc. elects to account for the bonds using the fair value option. Required a. Record the issuance of bonds on January 1, 2020. b. Record the interest payment on June 30, 2020. c. Record the interest payment on December 31, 2020. d. At December 31, 2020, the market rate on the bonds drops to 7.5% due to a general increase in market risk. Record the adjustment of bonds payable to fair value. • Note: List multiple debits or credits (when applicable) in alphabetical order. • Note: Round your answers to the nearest whole dollar. Date a Jan. 1, 2020 b June 30, 2020 c. Dec. 31, 2020 d. Dec. 31, 2020 Account Name ● ✿ + ÷ ÷ 0 • ÷ + = Dr. Cr.

Reporting Bonds Using the Fair Value Option Mitchell Inc. issued 24, 6%, $1,000 bonds on January 1, 2020, for $23,360. The bonds pay cash interest semiannually each June 30, and December 31, and were issued to yield 7%. The bonds mature December 31, 2022, and the company uses the effective interest method to amortize bond discounts or premiums. On January 1, 2020, Mitchell Inc. elects to account for the bonds using the fair value option. Required a. Record the issuance of bonds on January 1, 2020. b. Record the interest payment on June 30, 2020. c. Record the interest payment on December 31, 2020. d. At December 31, 2020, the market rate on the bonds drops to 7.5% due to a general increase in market risk. Record the adjustment of bonds payable to fair value. • Note: List multiple debits or credits (when applicable) in alphabetical order. • Note: Round your answers to the nearest whole dollar. Date a Jan. 1, 2020 b June 30, 2020 c. Dec. 31, 2020 d. Dec. 31, 2020 Account Name ● ✿ + ÷ ÷ 0 • ÷ + = Dr. Cr.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 5PA: Volunteer Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July...

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Volunteer Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received $540,000. Interest is payable annually. The premium is amortized using the straightline method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. June 30, 2019: entry to record payment of interest to bondholders C. June 30, 2019: entry to record amortization of premium D. June 30, 2020: entry to record payment of interest to bondholders E. June 30, 2020: entry to record amortization of premium
Aggies Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018, and received $540,000. Interest is payable semi-annually. The premium is amortized using the straight-line method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. Dec. 31, 2018: entry to record payment of interest to bondholders C. Dec. 31, 2018: entry to record amortization of premium
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