Concept introduction:
Bonds:
Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.
Amortization of Bonds premium or discount:
Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.
Requirement 1:
To prepare:
The Bond Amortization table using the
Concept introduction:
Bonds:
Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.
Amortization of Bonds premium or discount:
Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.
Requirement 2:
To prepare:
The
Concept introduction:
Bonds:
Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.
Amortization of Bonds premium or discount:
Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.
Requirement 3:
To indicate:
The balance sheet presentation of Bonds payable as on Dec. 31, 2020.
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Cornerstones of Financial Accounting
- Thornton Industries began construction of a warehouse on July 1, 2018. The project was completed on March 31,2019. No new loans were required to fund construction. Thornton does have the following two interest-bearingliabilities that were outstanding throughout the construction period:$2,000,000, 8% note$8,000,000, 4% bondsConstruction expenditures incurred were as follows:July 1, 2018 $400,000September 30, 2018 600,000November 30, 2018 600,000January 30, 2019 540,000The company’s fiscal year-end is December 31.Required:Calculate the amount of interest capitalized for 2018 and 2019.arrow_forwardChapter : Fixed Assets On December 10, 2018, Stella contracted with Billys Construction to have a new building constructed for $1,600,000 on land owned by Tosewarld. The payments made by Stella to Billys Construction are shown in the schedule below. See table Additional Information : Construction was completed and the building was ready for occupancy on December 31, 2019. Stella had the following debt outstanding at December 31, 2019 : 17%, 3-year note of $800,000 to finance construction of building, dated December 31, 2018, with interest payable annually on December 31 (Specific Construction Debt) 13%, 5-year note payable of $800,000, dated December 31, 2015, with interest payable annually on December 31 10%, 10-year bonds issue of $850,000, bonds issued December 31, 2014, with interest payable annually on December 31 Instructions: a. Compute the weighted-average accumulated expenditures on Stella’s new building during the capitalization period. b. Compute the avoidable…arrow_forwardChapter : Fixed Assets On December 10, 2018, Stella contracted with Billys Construction to have a new building constructed for $1,600,000 on land owned by Tosewarld. The payments made by Stella to Billys Construction are shown in the schedule below. See table Additional Information : Construction was completed and the building was ready for occupancy on December 31, 2019. Stella had the following debt outstanding at December 31, 2019 : 17%, 3-year note of $800,000 to finance construction of building, dated December 31, 2018, with interest payable annually on December 31 (Specific Construction Debt) 13%, 5-year note payable of $800,000, dated December 31, 2015, with interest payable annually on December 31 10%, 10-year bonds issue of $850,000, bonds issued December 31, 2014, with interest payable annually on December 31 Instructions: a. Some interest cost of Stella is capitalized for the year ended December 31, 2019. Identify the items relating to interest costs that must be…arrow_forward
- Tudor Company acquired $500,000 of Carr Corporation bonds for $487,706.69 on January 1, 2019. The bonds carry an 11% stated interest rate, pay interest semiannually on January 1 and July 1, were issued to yield 12%, and are due January 1, 2022. Required: 1. Prepare an investment interest income and discount amortization schedule using the: a. straight-line method b. effective interest method 2. Prepare the July 1, 2021, journal entries to record the interest income under both methods.arrow_forwardRequired information [The following information applies to the questions displayed below.] On January 1, 2021, Splash City issues $360,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 8%, the bonds will issue at $335,539. Required: 1. Complete the first three rows of an amortization table. (Round your intermediate and final answers to the nearest whole dollar.) Change in Carrying Value Carrying Value Interest Date Cash Paid Expense 1/1/21 $ 335,539 6/30/21 12/31/21arrow_forwardTo get cash to purchase operating assets, Ballard Company, with a December 31 fiscal year-end, issued bonds with the following characteristics: (i) (ii) (iii) (iv) C. Date of bonds: January 1, 2011 Maturity amount and date: $100,000 due in 10 years (December 31, 2020). Interest: 11% per year payable each December 31. Date issued: January 1, 2011. Required: a. Construct the amortization table for the first 2 years for each bond. See (b). b. Give the journal entries to record the issuance and the first 2 interest payments under each of 3 different independent cases: Case A - The bonds sold at par. Case B - The bonds sold to yield 12%. Case C - The bonds sold to yield 10% Provide the following amounts to be reported on the 2011 financial statements: a., Interest expense b., Bonds payable c., Unamortized premium or discount d., Net Liability e., Stated rate of interest (coupon rate) f., Cash paid for interest Case A $ Case B $ Case C $arrow_forward
- On January 1, 2021, Dreamlover Corporation purchased equipment from Daydream Company for P3,600,000. Term of payments includes issuing a 5-year noninterest-bearing note payable equally every end of the year. The effective interest rate is 15%. The entity used 2 decimal places for the PVF. Required: Prepare an amortization tablearrow_forwardOn January 1, 2015 ISU issued 4%, 5 year bonds with a face amount of 50 million dollars to fund the renovation of the Arena building (and 12 new pickle ball courts). The market yield for bonds of similar risk and maturity was 5%. Interest is paid semiannually on June 30 and December 31. Prepare an amortization table for ISU assuming the effective interest method is used. Follow the format of the amortization table on page 14-10 schedule of bond discount amortization in your text. Round amounts to the nearest dollar. Include all 10 payments in your table and totals for cash paid, interest expense, and discount amortized. Prepare an amortization table for ISU assuming the contract rate was 5%, the market rate was 4% and the effective interest method is used. Follow the format of the amortization table on page 14-11 schedule of bond premium amortization in your text. Round amounts to the nearest dollar. Include all 10 payments in your table and totals for cash paid, interest expense,…arrow_forwardOn January 1, 2015 ISU issued 4%, 5 year bonds with a face amount of 50 million dollars to fund the renovation of the Arena building (and 12 new pickle ball courts). The market yield for bonds of similar risk and maturity was 5%. Interest is paid semiannually on June 30 and December 31. Prepare an amortization table for ISU assuming the effective interest method is used. Follow the format of the amortization table on page 14-10 schedule of bond discount amortization in your text. Round amounts to the nearest dollar. Include all 10 payments in your table and totals for cash paid, interest expense, and discount amortized. 2. Prepare an amortization table for ISU assuming the contract rate was 5%, the market rate was 4% and the effective interest method is used. Follow the format of the amortization table on page 14-11 schedule of bond premium amortization in your text. Round amounts to the nearest dollar. Include all 10 payments in your table and totals for cash paid, interest…arrow_forward
- On January 1, 2015 ISU issued 4%, 5 year bonds with a face amount of 50 million dollars to fund the renovation of the Arena building (and 12 new pickle ball courts). The market yield for bonds of similar risk and maturity was 5%. Interest is paid semiannually on June 30 and December 31. Prepare an amortization table for ISU assuming the effective interest method is used. Follow the format of the amortization table on page 14-10 schedule of bond discount amortization in your text. Round amounts to the nearest dollar. Include all 10 payments in your table and totals for cash paid, interest expense, and discount amortized. 2. Prepare an amortization table for ISU assuming the contract rate was 5%, the market rate was 4% and the effective interest method is used. Follow the format of the amortization table on page 14-11 schedule of bond premium amortization in your text. Round amounts to the nearest dollar. Include all 10 payments in your table and totals for cash paid, interest…arrow_forward! Required information [The following information applies to the questions displayed below.] On January 1, 2021, Splash City issues $350,000 of 8% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 7%, the bonds will issue at $382,187. Required: 1. Complete the first three rows of an amortization table. (Round your final answers to the nearest whole dollar.) Decrease in Carrying Value Interest Carrying Value Date Cash Paid Expense 1/1/21 6/30/21 12/31/21arrow_forwardOn January 1, 2019, ZZZ Company purchased bonds with face amount of P5,000000. The entity paid P4,500,000 plus transaction costs of P168,600. The bonds mature on December 31, 2022 and pay 6% interest annually on December 31 each year with 8% effective yield. The bonds are quoted at 105 on December 31, 2019 and 110 on December 31, 2020. The business model in managing the financial asset is to collect contractual cash flows and also to sell the bonds in the open market. The entity has not elected the fair value option. On December 31, 2020, the entity changed the business model to collect only contractual cash flows. On December 31, 2021, the bonds are quoted at 115 and the market rate of interest is 10%. What mount of cumulative unrealized gain should be reported as component of OCI in the statement of changes in equity for 2020?arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning