Question

On January 1, 2019, Drennen Inc. issued $4.1 million face amount of 10-year, 14% stated rate...

On January 1, 2019, Drennen Inc. issued $4.1 million face amount of 10-year, 14% stated rate bonds when market interest rates were 12%. The bonds pay semiannual interest each June 30 and December 31 and mature on December 31, 2028.

b-1. Assume instead that the proceeds were $4,029,000. Use the horizontal model to record the payment of semiannual interest and the related discount amortization on June 30, 2019, assuming that the discount of $71,000 is amortized on a straight-line basis. Indicate the financial statement effect. (Enter decreases with a minus sign to indicate a negative financial statement effect.)

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Solution:

Financial statement effect:

Workings:

Amortization of discount as on June 30, 2019 = ($71,000 / 10)/2 = $3,550

Payment of cash toward interest = $4,100,000×14% / 2 = $287,000

Interest expense = $287,000 + 3,550 = $290,550

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Alexi Co. issued $3.00 million face amount of 6%, 10-year bonds on June 1, 2019. The...
Alexi Co. issued $3.00 million face amount of 6%, 10-year bonds on June 1, 2019. The bonds pay interest on an annual basis on May 31 each year. b-1. Independent of your answer to part a, assume that the proceeds were $2,634,000. Use the horizontal model to show the effect of issuing the bonds. Indicate the financial statement effect. (Enter your answers in whole dollars, not in millions. Enter decreases with a minus sign to indicate a negative financial statement...
Myriad Solutions, Inc., issued 12% bonds, dated January 1, with a face amount of $330 million...
Myriad Solutions, Inc., issued 12% bonds, dated January 1, with a face amount of $330 million on January 1, 2018, for $295,039,998. The bonds mature on December 31, 2027 (10 years). For bonds of similar risk and maturity the market yield is 14%. Interest is paid semiannually on June 30 and December 31. Required: Complete the table below to calculate the amounts related to the bonds that Myriad would report in its financial statements. Indicate the amounts reported on the...
Myriad Solutions, Inc., issued 10% bonds, dated January 1, with a face amount of $320 million...
Myriad Solutions, Inc., issued 10% bonds, dated January 1, with a face amount of $320 million on January 1, 2018, for $283,294,720. The bonds mature on December 31, 2027 (10 years). For bonds of similar risk and maturity the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Indicate the amounts reported on the financial statements below for the year ending December 31, 2018. Balance Sheet: Net Liability _______ Income Statement: Interest Expense _________ Statement...
issued 11% bonds, dated January 1, with a face amount of $800,000 on January 1, 2009....
issued 11% bonds, dated January 1, with a face amount of $800,000 on January 1, 2009. The bonds sold for $739,815 and mature in 2028 (20 years). For bonds of similar risk and maturity, the market yield was 12%. Interest is paid semiannually on June 30 and December 31. The company uses the effective interest method of amortization and has a calendar year end.   Instructions: Prepare the journal entries that Federal Semiconductors would make on January 1, June 30, December...
On January 1, 2017, Banek Inc. issued $350,000 of 8%, 9 year bonds for $309,086, which...
On January 1, 2017, Banek Inc. issued $350,000 of 8%, 9 year bonds for $309,086, which implies a market (yield) rate of 10%. Semiannual interest payable on June 30 and December 31 of each year. A. Show computations to confirm the bond issue price B. Inidicate the financial statement effects using the template for 1) bond insurance 2) semiannual interest payment and discount authorization on June 30, 2017 and 3) semiannual interest payment and discount amortization on December 31, 2017.
On June 30, 2021, Singleton Computers issued 6% stated rate bonds with a face amount of...
On June 30, 2021, Singleton Computers issued 6% stated rate bonds with a face amount of $100 million. The bonds mature on June 30, 2036 (15 years). The market rate of interest for similar bond issues was 5% (2.5% semiannual rate). Interest is paid semiannually (3.0%) on June 30 and December 31, beginning on December 31, 2021. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from...
On June 30, 2018, Singleton Computers issued 8% stated rate bonds with a face amount of...
On June 30, 2018, Singleton Computers issued 8% stated rate bonds with a face amount of $100 million. The bonds mature on June 30, 2033 (15 years). The market rate of interest for similar bond issues was 6% (3.0% semiannual rate). Interest is paid semiannually (4.0%) on June 30 and December 31, beginning on December 31, 2018. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from...
5. On June 30, 2018, Singleton Computers issued 5% stated rate bonds with a face amount...
5. On June 30, 2018, Singleton Computers issued 5% stated rate bonds with a face amount of $320 million. The bonds mature on June 30, 2033 (15 years). The market rate of interest for similar bond issues was 4% (2.0% semiannual rate). Interest is paid semiannually (2.5%) on June 30 and December 31, beginning on December 31, 2018. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s)...
Reporting Financial Statement Effects of Bond Transactions On January 1, 2016, McKeown, Inc., issued $350,000 of...
Reporting Financial Statement Effects of Bond Transactions On January 1, 2016, McKeown, Inc., issued $350,000 of 10%, 9-year bonds for $312,103, yielding a market (yield) rate of 12%. Semiannual interest is payable on June 30 and December 31 of each year. Required a. Show computations to confirm the bond issue price. b. Prepare journal entries to record the bond issuance, semiannual interest payment and discount amortization on June 30, 2016, and semiannual interest payment and discount amortization on December 31,...
Universal Foods issued 10% bonds, dated January 1, with a face amount of $172 million on...
Universal Foods issued 10% bonds, dated January 1, with a face amount of $172 million on January 1, 2021 to Wang Communications. The bonds mature on December 31, 2035 (15 years). The market rate of interest for similar issues was 12%. Interest is paid semiannually on June 30 and December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. to...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT