Question

Homework: Homework - Chapter 09 Save 2 of 4 (1 complete) HW Score: 25%, 2 of 8 pts Score: 0 of 2 pts E9-23A (similar to) Question Help Barret, Inc., issued $350,000 of 5 year, 5 percent bonds payable on January 1. Barret, Inc., pays interest each January 1 and July 1 and amortizes any discount or premium by the straight-line method. Barret, Inc., can issue its bonds payable under various conditions: (Click the icon to view the conditions.) Read the requirements. Requirement 1. Joumalize Barret's issuance of the bonds and first semiannual interest payment for each situation. Explanations are not required. (Record debits first, then credits. Exclude explanations from any journal entries.) a. Record the issuance of the bonds payable at par value. More Info Joumal Entry Accounts Date Debit Credit Jan 1 a. Issuance at per value b. Issuance at a price of $275,000 when the market rate was above 5 percent c. Issuance at a price of $430,000 when the market rate was below 5 percent Print Done i Requirements 1. Joumalize Barret, Inc.'s issuance of the bonds and first semiannual interest payment for each situation. Round calculations to the nearest dollar. Explanations are not required. 2. Which condition results in the most interest expense for Barret, Inc.7 Explain in detail. Print Done

Answer 1

ANSWER = 1
Journal Entries
Sr. No.	Date	Account Title and explanation	Debit	Credit
	ISSUANCE AT PAR VALUE:
1	January, 01	Cash	$3,50,000
		Bonds Payable		$3,50,000
2	July , 01	Interest Expenses ($ 350,000 X 5% )	$17,500
		Cash		$17,500
	ISSUANCE AT DISCOUNTED VALUE
1	January, 01	Cash	$2,75,000
		Discount on Bond Payable	$75,000
		Bonds Payable		$3,50,000
2	July , 01	Interest Expenses	$25,000
		Cash		$17,500
		Discount on Bonds Payalbe (WN 1)		$7,500
	ISSUANCE AT PREMIUM
1	January, 01	Cash	$4,30,000
		Bonds Payable		$3,50,000
		Premium on Bond issuance		$80,000
2	July , 01	Interest Expenses (17,500 - $ 8,000)	$9,500
		Premium on Bonds Issuance (WN 2)	$8,000
		Cash		$17,500
		Working note: 1
		Bonds issued at Discount =
		Par value of the bonds =	$3,50,000
		Less: Issued price	$2,75,000
		Discounted Value	$75,000
		Divide By no, of Periods = (5 years X 2 Half year)	10
		Amortization of discount at every period	$7,500
		Working note: 2
		Bonds issued at Premium =
		Par value of the bonds =	$3,50,000
		Less: Issued price	$4,30,000
		Discounted Value	$80,000
		Divide By no, of Periods = (5 years X 2 Half year)	10
		Amortization of discount at every period	$8,000
ANSWER = 2
	Bonds issued at discounted price is most interest expenses because the market rate of interest rate is
	higher than bonds rate. So in this case whatever the discounted value of bonds will be amortized in
	interest period of bonds.