Describe the recording procedures for the issuance, retirement, and paying of interest for installment notes.
- 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%|
What is the amount of cash that Wasp receives today?
- 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%.
- What is the amount of each semiannual interest payment for these bonds?
- How many semiannual interest payments will be made on these bonds over their life?
- Use the interest rates given to determine whether the bonds are issued at par, at a discount, or at a premium.
- Compute the price of the bonds as of their issue date.
- Prepare the journal entry to record the bonds’ issuance.
- 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.
- Compute the amount of each of the four equal total payments.
- Prepare an amortization table for this installment note.
- 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.
- Prepare the January 1, 2015, journal entry to record the bonds’ issuance.
- For each semiannual period, compute (a) the cash payment, (b) the straight-line discount amortization, and (c) the bond interest expense.
- Determine the total bond interest expense to be recognized over the bonds’ life.