A company issued a 5 year, 7% B/P with a face value of $300,000 at 103...
A company issued a 5 year, 7% B/P with a face value of $300,000 at 103 when the market rate if 6%. Interest payments are made semiannually. Using the effective interest method, what would be the journal entry for the first payment?
| a. |
debit interest expense $10,500, debit bond premium $1,230; credit cash $11,730 |
|
| b. |
debit interest expense $10,500; credit bond discount $1,230, credit cash $9,270 |
|
| c. |
debit interest expense $9,270, debit bond premium $1,230; credit cash $10,500 |
|
| d. |
debit interest expense $9,270, debit bond discount $1,230; credit cash $10,500 |
A company issued a 5 year, 7% B/P with a face value of $300,000 at 103 when the market rate if 6%. Interest payments are made semiannually. Using the straight-line method, what would be the journal entry for the first payment?
| a. |
debit interest expense $9,600, debit bond discount $900; credit cash $10,500 |
|
| b. |
debit interest expense $9,600, debit bond premium $900; credit cash $10,500 |
|
| c. |
debit interest expense $10,500; credit bond discount $900, credit cash $9,600 |
|
| d. |
debit interest expense $10,500; credit bond premium $900, credit cash $9,600 |
Homework Answers
Answer to Question 1:
Face Value of Bonds = $300,000
Issue Value of Bonds = 103% * $300,000
Issue Value of Bonds = $309,000
Annual Coupon Rate = 7.00%
Semiannual Coupon Rate = 3.50%
Semiannual Coupon = 3.50% * $300,000
Semiannual Coupon = $10,500
Annual Interest Rate = 6.00%
Semiannual Interest Rate = 3.00%
Answer to Question 2:
Face Value of Bonds = $300,000
Issue Value of Bonds = 103% * $300,000
Issue Value of Bonds = $309,000
Premium on Bonds Payable = Issue Value of Bonds - Face Value of
Bonds
Premium on Bonds Payable = $309,000 - $300,000
Premium on Bonds Payable = $9,000
Annual Coupon Rate = 7.00%
Semiannual Coupon Rate = 3.50%
Semiannual Coupon = 3.50% * $300,000
Semiannual Coupon = $10,500
Time to Maturity = 5 years
Semiannual Period = 10
Semiannual Amortization of Premium = Premium on Bonds Payable /
Semiannual Period
Semiannual Amortization of Premium = $9,000 / 10
Semiannual Amortization of Premium = $900
Semiannual Interest Expense = Semiannual Coupon - Semiannual
Amortization of Premium
Semiannual Interest Expense = $10,500 - $900
Semiannual Interest Expense = $9,600
Add Answer to:
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