Question

Score: 0 of 15 pts 3 of 7 (0 complete) HW Score: 0%, 0 of 10 S9-5 (similar to) Question Help Homer Company borrowed money by issuing $4,000,000 of 4% bonds payable at 101.9 on July 1, 2018. The bonds are five-year bonds and pay interest each Jan 1 and July 1. Read the requirements. 1. How much cash did Homer receive when it issued the bonds payable? Journalize this transaction. Homer received $ L w hen the bonds payable were issued. 0 Requirements 1. How much cash did Homer receive when it issued the bonds payable? Journalize this transaction. 2. How much must Homer pay back at maturity? When is the maturity date? 3. How much cash interest will Homer pay each six months? How much interest expense will Homer report each six months? Use the straight-line amortization method. Journalize the entries for the accrual of interest and the amortization of premium on December 31, 2018, and payment of interest on January 1, 2019. Print Print Done Enter any number in parts I remaining Clear All Check Answer

Answer 1

Solution 1:

Amount to be received by home at the time of issuance of bond = $4,000,000*101.9% = $4,076,000

Solution 2:

Maturity date = 01.07.2018 + 5 year = 01.07.2023

Amount to be paid at maturity = Bond face value + Interest of last 6 months

= $4,000,000 + $4,000,000*4%*6/12 = $4,080,000

Solution 3:

Cash interest paid every 6 months = $4,000,000*4%*6/12 = $80,000

Solution 4:

Interest expense to be reported every six months = Cash interest paid - Premium amortized

= $80,000 - ($76,000/10) = $72,400

Journal Entries - Homer Company
Date	Particulars	Debit	Credit
31-Dec-18	Interest expense Dr	$72,400.00
	Premium on bond payable Dr	$7,600.00
	To Interest payable		$80,000.00
	(To record interest accrual and premium amortization)
1-Jan-19	Interest payable Dr	$80,000.00
	To Cash		$80,000.00
	(To record semi annual interest payment)