P14-5 P14-6 and P14-7
P14-5 (Comprehensive Bond Problem) In each of the
following independent cases the company closes its 5 books on December 31.
1. Sanford Co. sells $500,000 of 10% bonds on March
1, 2014. The bonds pay interest on September 1 and March 1. The due date of the
bonds is September 1, 2017. The bonds yield 12%. Give entries through December
31, 2015.
2. Titania Co. sells $400,000 of 12% bonds on June
1, 2014. The bonds pay interest on December 1 and June 1. The due date of the
bonds is June 1, 2018. The bonds yield 10%. On October 1, 2015, Titania buys
back $120,000 worth of bonds for $126,000 (includes accrued interest). Give
entries through December 1, 2016.
Instructions
For the two cases prepare all of the relevant
journal entries from the time of sale until the date indicated. Use the
effective-interest method for discount and premium amortization (construct
amortization tables where applicable). Amortize premium or discount on interest
dates and at year-end. (Assume that no reversing entries were made.)
P14-6 (Issuance of Bonds between Interest Dates,
Straight-Line, Redemption) Presented below are selected transactions on the
books of Simonson Corporation.
01-May-14
Dec. 31
Jan. 1, 2015 April 1
Dec. 31
Instructions
Bonds payable with a par value of $900,000, which
are dated January 1, 2014, are sold at 106 plus accrued interest. They are
coupon bonds, bear interest at 12% (payable annually at January 1), and mature
January 1, 2024. (Use interest expense account for accrued interest.) Adjusting
entries are made to record the accrued interest on the bonds, and the amortiza-
tion of the proper amount of premium. (Use straight-line amortization.)
Interest on the bonds is paid. Bonds with par value of $360,000 are called at
102 plus accrued interest, and redeemed. (Bond premium is to be amortized only
at the end of each year.) Adjusting entries are made to record the accrued
interest on the bonds, and the proper amount of premium amortized. (Round to two decimal places.)
Prepare journal entries for the transactions above.
P14-7 (Entries for Life Cycle of Bonds) On April 1,
2014, Seminole Company sold 15,000 of its 11%, 15-year, $1,000 face value bonds
at 97. Interest payment dates are April 1 and October 1, and the company uses
the straight-line method of bond discount amortization. On March 1, 2015,
Seminole took advantage of favorable prices of its stock to extinguish 6,000 of
the bonds by issuing 200,000 shares of its $10 par value common stock. At this
time, the accrued interest was paid in cash. The company’s stock was selling
for $31 per share on March 1, 2015.
Instructions
Prepare the journal entries needed on the books of
Seminole Company to record the following.
(a) April 1, 2014: issuance of
the bonds.
(b) October 1, 2014: payment of
semiannual interest.
(c) December 31, 2014: accrual of
interest expense.
(d) March 1, 2015: extinguishment of 6,000 bonds.
(No reversing entries made.)
TUTORIAL
PREVIEW
1. Sanford Co. sells $500,000 of 10% bonds on March
1, 2014. The bonds pay interest on September 1 and March 1. The due date of the
bonds is September 1, 2017. The bonds yield 12%. Give entries through December
31, 2015.
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1. Sanford Co.
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Calculation of present value of bonds:
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Rate = 12%/ 2 =
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6%
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Nper =
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7
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PMT = 500,000 x 10%x 1/2 =
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-25000
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FV =
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-500,000
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