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Exercise 9-70 (Algorithmic) Interest Payments and Interest Expense for Bonds (Straight Line) Klamath Manufacturing sold 20-year...

Exercise 9-70 (Algorithmic)
Interest Payments and Interest Expense for Bonds (Straight Line)

Klamath Manufacturing sold 20-year bonds with a total face amount of $394,000 and a stated rate of 7.5%. The bonds sold for $418,000 on January 1, 2020, and pay interest semiannually on June 30 and December 31.

Required:

1. Prepare the entry to recognize the sale of the bonds.

2020 Jan. 1 fill in the blank 9acf17fa9fb9ff9_2 fill in the blank 9acf17fa9fb9ff9_3
fill in the blank 9acf17fa9fb9ff9_5 fill in the blank 9acf17fa9fb9ff9_6
fill in the blank 9acf17fa9fb9ff9_8 fill in the blank 9acf17fa9fb9ff9_9
(Record issuance of bonds at premium.)

2. Determine the amount of the semiannual cash interest payment required by the bonds. Round your answer to the nearest whole dollar, if required.
$fill in the blank d4b419fc307df9d_1

3. Prepare the journal entry made by Klamath at June 30, 2020, to recognize the interest expense and an interest payment. Round your answers to the nearest whole dollar, if required.

2020 June 30 fill in the blank ffc480fd2021ff1_2 fill in the blank ffc480fd2021ff1_3
fill in the blank ffc480fd2021ff1_5 fill in the blank ffc480fd2021ff1_6
fill in the blank ffc480fd2021ff1_8 fill in the blank ffc480fd2021ff1_9
(Record interest expense.)

4. Determine the amount of interest expense for 2020.
$fill in the blank 479c2af65fcdfb9_1

5. Conceptual Connection: If Klamath issued bonds with a variable interest rate, would you expect the market rate of interest to increase, decrease, or stay the same?

Business   Accounting   
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Homework Answers

Answer #1

1.

Account Titles Debit Credit
Cash $         418,000
        Bonds Payable $         394,000
        Premium on Bonds Payable $           24,000

2.
Semi-annual Cash interest payment = $394000 x 7.5% x 6/12 = $14775

3.

Account Titles Debit Credit
Interest Expense $           14,175
Premium on Bonds Payable $                600
       Interest Payable $           14,775

4.
Amount of interest expense for 2020 = $14175 x 2 = $28350

5.
Increase
Since market rate of interest is higher than stated interest rate at issue date

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