Question

Name CH14 Graded Written Homework PROBLEM 1 On January 1, 2019 the first day of its fiscal year, Monitors Corporation issued $405.000 of nine-year, 6% bonds when the market rate was 5%, with interest payable semiannually, on June 30 and December 31. The company uses the effective interest rate method to amortize bond discounts and premiums. Calculate the proceeds from the sale of the bonds (selling price) and write your answer on the line provided. Use the present value tables provided in class (also posted in our course D2L shell with the CH14 materials) to make the calculation. (Use the numbers exactly as they appear in the table.) Round to the nearest whole dollar when necessary. You must show your work for any credit to be awarded. Prepare all required journal entries for 2019.

Answer 1

Amount of interest (405000*6% *6/12) (A) P.V n = 18 1 = 2.5% (B) Present Value of Interest (A *B)=( C) PV of Face Value (405000*.64117) = (D) Selling (Issue) Price of the Bonds (C+D) 12150 14.35336 174393 259674 434067 48

Date 49 50 Cash paid @6%/2 of Par Value Interest Expense @ 5%/2 on carrying value Amortization of premium Unamortized Premium Carrying Value 54 58 59 60 1-Jan 30-Jun 31-Dec 30-Jun 31-Dec 30-Jun 31-Dec 30-Jun 31-Dec 30-Jun 31-Dec 30-Jun 31-Dec 30-Jun 31-Dec 30-Jun 31-Dec 30-Jun 31-Dec 12,150 12,150 12,150 12,150 12,150 12,150 12,150 12,150 12,150 12,150 12,150 12,150 12,150 12,150 12,150 12,150 12,150 12,150 10,852 10,819 10,786 10,752 10,717 10,681 10,644 10,607 10,568 10,529 10,488 10,446 10,404 10,360 10,316 10,270 10,223 10,172 189,633 1,298 1,331 1,364 1,398 1,433 1,469 1,506 1,543 1,582 1,621 1,662 1,704 1,746 1,790 1,834 1,880 1,927 1,978 29,067 27,769 26,438 25,074 23,676 22,243 20,774 19,268 17,725 16,143 14,522 12,860 11,156 9,410 7,620 5,786 3,905 1,978 434,067 432,769 431,438 430,074 428,676 427,243 425,774 424,268 422,725 421,143 419,522 417,860 416,156 414,410 412,620 410,786 408,905 406,978 405,000 62 63 64 65 66 67 68 69 70 71 72 Total Interest expense

75 Debit Credit 76 434,067 Date Account Title & Explanation 2019 1-Jan Cash Bonds payable Premium on Bonds Payable (To record issue of Bonds at Premium) 405,000 29,067 10,852 1,298 83 84 30-Jun Interest expense Premium on Bonds Payable Cash (To record the Interest payment) 12,150 10,819 1,331 31-Dec Interest expense Premium on Bonds Payable Cash (To record the Interest payment) 12,150 How much cash will the company pay to the bond holders during 2019? Cash paid on 30th June Cash paid on 31st December Total Cash paid during 2019 12,150 12,150 24,300

99 How much interest expense will the company recognize for 2019? Interest expense on 30th June Interest expenseon 31st December Total Interest expense during 2019 10,852 10,819 21,671 103 At what rate of interest is Monitors corporation borrowing this money? 106 107 Corporation is borrowing this money at market rate of interest which is 5%. 108 109 How much interest expense will the company recognize over the life of the Bond? 110 111 112 Interest expense will be recognized over the life of the period will be $189633 113 Discuss when an adjusting journal entry is required with respect to bonds payable? 114 115 When the interest will not be paid at the end of the year. Suppose the year ends on 31st Dec. and we pay interest on 1st Jan. then adjusting entry will be required. 116 117 118