Question

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 $369,000 and a stated rate of 7.5%. The bonds sold for $393,000 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 5d3e7bfc2f93fb1_2	fill in the blank 5d3e7bfc2f93fb1_3
		fill in the blank 5d3e7bfc2f93fb1_5	fill in the blank 5d3e7bfc2f93fb1_6
		fill in the blank 5d3e7bfc2f93fb1_8	fill in the blank 5d3e7bfc2f93fb1_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 1416180bdfd7019_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 ecd32b026f8dfba_2	fill in the blank ecd32b026f8dfba_3
		fill in the blank ecd32b026f8dfba_5	fill in the blank ecd32b026f8dfba_6
		fill in the blank ecd32b026f8dfba_8	fill in the blank ecd32b026f8dfba_9
	(Record interest expense.)

4. Determine the amount of interest expense for 2020.
$fill in the blank 31563b06f043fe2_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?

Answer 1

• All working forms part of the answer
• Requirements asked

01-Jan-20	Cash	$393,000		[Requirement 1]
	Premium on Bonds Payable		$24,000
	Bonds Payable		$369,000
	(to record issuance)
	Amount of semi annual interest	$13,838	$ 369000 x 7.5% x 6/12	[Requirement 2]
30-Jun-20	Interest Expense	$13,238		[Requirement 3]
	Premium on Bonds Payable ($24000 / 40 periods)	$600
	Cash		$13,838
	(to record interest Payment)
	Amount of interest expense for 2020	$26,476	[$ 13238 x 2]	[Requirement 4]