In each of the following independent cases the company closes its 5
books on December 31.
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.)
TUTORIAL
PREVIEW
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Schedule of Bond Discount Amortization
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Effective-Interest Method
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10% Bonds Sold to Yield 12%
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Date
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Cash Paid
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Interest Expense
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Discount Amortized
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Carrying Amount of Bonds
|
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Mar 1, 14
|
|
|
|
472,088
|
|
Sep 1, 14
|
25,000
|
28,325
|
3,325
|
475,413
|
|
Mar 1, 15
|
25,000
|
28,525
|
3,525
|
478,938
|
File name: P14-5 Comprehensive.xls File
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