Question

P14.5 (LO 1, 2 ) (Comprehensive Bond Problem) In each of the following independent cases, the company closes its books on December 31.

1.Sanford Co. sells $500,000 of 10% bonds on March 1, 2020. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2023. The bonds yield 12%. Give entries through December 31, 2021.

2.Titania Co. sells $400,000 of 12% bonds on June 1, 2020. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2024. The bonds yield 10%. On October 1, 2021, Titania buys back $120,000 worth of bonds for $126,000 (includes accrued interest). Give entries through December 1, 2022.

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.)

Answer 1

ans 1
date	accounts title	dr	cr
mar 1 2020	cash	$453,525
	Discount on bonds payable	$46,476
	bonds payable		500000
sep 1 2020	interest expenses	27211
	Discount on bonds payable		2211
	cash		25000
dec 31 2020	interest expenses 455736x.06x4/12	18229
	Discount on bonds payable		1562
	Interest payable 25000x.10x4/12		16667
mar 1 2021	interest expenses for two months	9115
	Discount on bonds payable2344-1562		782
	Interest payable	16667
	cash		25000
sep 1 2021	interest expenses	27485
	Discount on bonds payable		2485
	cash		25000
dec 31 2021	interest expenses 27485x4/6	18323
	Discount on bonds payable 2485x4/6		1657
	Interest payable		16666
	Price of the bonds
	PV of interest+PV of principal
	25000*PVIFA (6%,14)+500000*PVIF(6%,14)
	(25000*9.29498)+(500000*..44230)	453525
	Interest paymnets
	500000*5%	25000
Date	Interest Payment @5%	Interest expenses at 6%*G	Amortization of Bond C-B	cr, balance in the a/c Bond Premium a/c	Credit balance in the Bond payable	Carrying value of Bond F+E
	Credit cash	Debit Interest Expense	Bond discount
mar 1 2020				46476	500000	453525
sep 1 2020	25000	27211	2211	44264	500000	455736
mar 1 2021	25000	27344	2344	41920	500000	458080
sep 1 2021	25000	27485	2485	39435	500000	460565
mar 1 20200	25000	27634	2634	36801	500000	463199
case 2
	Price of the bonds
	PV of interest+PV of principal
	24000*PVIFA (5%,16)+500000*PVIF(5%,16)
	(24000*10.836777)+(400000*.45811)	443350
	Interest paymnets
	400000*6%	24000
Date	Interest Payment @6%	Interest expenses at 5%*G	Amortization of Bond C-B	cr, balance in the a/c Bond Premium a/c	Credit balance in the Bond payable	Carrying value of Bond F+E
	Credit cash	Debit Interest Expense	Bond Premium
june 1 2020				43350	400000	443350
dec 1 2020	24000	22168	1832	41518	400000	441518
june 1 2021	24000	22076	1924	39594	400000	439594
dec 1 2021	24000	21980	2020	37574	400000	437574
june 1 2021	24000	21879	2121	35452	400000	435452
dec 1 2022	24000	21773	2227	33225	400000	433225
date	accounts title	dr	cr
june 1 2020	cash	$443,350
	premium on bonds payable		$43,350
	bonds payable		400000
dec 1 2020	interest expenses	22168
	premium on bonds payable	1832
	cash		24000
dec 31 2020	interest expenses 22076x1/6	3679
	premium on bonds payable 1924x1/6	321
	Interest payable		4000
june 1 2021	interest expenses for five months	18397
	premium on bonds payable 1924x5/6	1603
	Interest payable	4000
	cash		24000