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Week 7 BONDS

21 Oct

Describe the recording procedures for the issuance, retirement, and paying of interest for installment notes.

  1. Wasp Corporation has a loan agreement that provides it with cash today, and the company must pay $25,000 one year from today, $15,000 two years from today, and $5,000 three years from today. Wasp agrees to pay 10% interest. The following are factors from a present value table:
Periods Interest rate 10%
1 0.9091
2 0.8264
3 0.7513

What is the amount of cash that Wasp receives today?

 

 

  1. Bringham Company issues bonds with a par value of $800,000 on their stated issue date. The bonds mature in 10 years and pay 6% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 8%.
  2. What is the amount of each semiannual interest payment for these bonds?
  3. How many semiannual interest payments will be made on these bonds over their life?
  4. Use the interest rates given to determine whether the bonds are issued at par, at a discount, or at a premium.
  5. Compute the price of the bonds as of their issue date.
  6. Prepare the journal entry to record the bonds’ issuance.

 

  1. On January 1, 2015, Eagle borrows $100,000 cash by signing a four-year, 7% installment note. The note requires four equal total payments of accrued interest and principal on December 31 of each year from 2015 through 2018.
  2. Compute the amount of each of the four equal total payments.
  3. Prepare an amortization table for this installment note.

 

  1. Hillside issues $4,000,000 of 6%, 15-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $4,895,980.

Required:

  1. Prepare the January 1, 2015, journal entry to record the bonds’ issuance.
  2. For each semiannual period, compute (a) the cash payment, (b) the straight-line discount amortization, and (c) the bond interest expense.
  3. Determine the total bond interest expense to be recognized over the bonds’ life.

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Posted by on October 21, 2017 in academic writing, Academic Writing

 

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