Question

You are an accounting intern working for SpringFit Corporation. You have recently been assigned to help one of the accountants who is doing an internal audit of the business. You will be assisting with a review of the payables issued by SpringFit Corporation. Your first task is to review the previous year’s journal entries, shown as follows:

Journal Entries, Year 1

Journal
Date	Description	Debit	Credit
Jan. 1	Cash	1,004,720
	Premium on Bonds Payable		58,720
	Bonds Payable		946,000
Jun. 30	Interest Expense	18,349
	Premium on Bonds Payable	2,936
	Cash		21,285
Jul. 1	Cash	1,729,164
	Discount on Bonds Payable	70,836
	Bonds Payable		1,800,000
Dec. 31	Interest Expense	18,349
	Premium on Bonds Payable	2,936
	Cash		21,285
31	Interest Expense	37,403
	Discount on Bonds Payable		5,903
	Cash		31,500
31	Retained Earnings	74,101
	Interest Expense		74,101

Bonds Payable

Review the journal entries on the SpringFit Corporation panel, then answer the following questions.

1. Assuming that no bonds had been issued prior to Year 1, how many different bonds appear in the journal entries for this year?

2

2. Which entry shows bonds issued at a contract rate lower than the market rate of interest? Choose the date.

July 1

3. How much interest was paid during the year on the bonds in question (2)?

$

4. What is the carrying amount of the bonds in question (2) at the end of the year?

$

5. Which entry shows bonds that sold for more than their face amount? Choose the date.

Jan. 1

6. How much interest was paid during the year on the bonds in question (5)?

$

7. Assuming that straight-line amortization is used for the bonds in question (5), what is the bond life?

10 years

8. What is the carrying value of the bonds in question (5) at the end of the year?

$

Answer 1

Answer

(1). There are two different bonds were issued during the year 1.

1st type of bond was issued on jan 1 and second type of bond was issued on jul 1.

(2). Bonds that were issued on jul 1. That show that bonds were issued lower than market rate of interest.

(3). Interest paid on bonds that were issued on jul 1 is 31,500

(4). Carrying amount of bonds in question 2 was 1,800,000.

(5). Bond issued on jan 1 were sold for more than face value.. And 1st entry show this effect.

(6). Interest paid on bonds in question 5 was 21,285.

(7). 10 years

(8). Carrying amount of bond at the end of year is 946,000

Note:- all amounts are in $.