Question

Sandhill Co. sold $3,190,000, 8%, 10-year bonds on January 1, 2022. The bonds were dated January 1, 2022, and pay interest on January 1. The company uses straight-line amortization on bond premiums and discounts. Financial statements are prepared annually.

List of Accounts Problem 10-09A Accounts Payable Accounts Receivable Accumulated Depreciation Equipment Accrued Pension Liability Bonds Payable Buildings Cash Common Stock Cost of Goods Sold Current Portion of Long-Term Debt Depreciation Expense Discount on Bonds Payable Dividends Equipment Federal Income Taxes Payable Federal Unemployment Taxes Payable FICA Taxes Payable Gain on Bond Redemption Income Tax Expense Income Taxes Payable Insurance Expense Interest Expense Interest Payable Inventory Land Loss on Bond Redemption Mortgage Payable No Entry Notes Payable Other Operating Expenses Payroll Tax Expense Premium on Bonds Payable Prepaid Insurance Property Taxes Payable Retained Earnings Salaries and Wages Expense Salaries and Wages Payable Sales Revenue Sales Taxes Payable Service Revenue Share Premium-Conversion Equity State Income Taxes Payable State Unemployment Taxes Payable Subscription Revenue Ticket Revenue Unearned Rent Revenue Unearned Sales Revenue Unearned Service Revenue Unearned Subscription Revenue Unearned Ticket Revenue Union Dues Payable Warranty Liability

Answer 1

step-I- computation of number of Bonds issued > 3,190,000 = 31900 Bondo loo > face value [Note: Sonce the face value has not been given it is assured to be L $100 No. Date Account Tites and Explanation - l Debit I credit 1.- . When bonds are sold at 103 3,285,700 Cash All Dr. To Bonds payable To Premium on Bonds bayable 3,190,000 95,700 when bonds are sold at 97 cash All Dr. Discount on Bondo fr. S payable All To Bonds payable 3,094,300 95,700 3,190,000 working - Next Image

I when bonds are in sold at $103 Premium on Bonds 2 = 3 x 31900 = 95,700 payable J ** 31900 345,700 Bonds payable 100 * 31900 = 3,190,000 103 x 31900 = 3,285, 700 2. When bonds are sold at $97 Discount on Bonds } = (100-97) x 31900 "paщabu => 95,700 Bondo bayable = 100 x 31,900 = 3,190,000 cash • 97 * 31900 - 3,094,300.

Amortigation at 103 Sold at table for for the issuance of the bonds first three interest payments Annual erest Periods Interest to Interest be paid expenses to be recorded Premium Amortization Unamortinged Bond Premium carrying Value Issue date NIL NIL I NIL 95,700 3,285,700 255,200 245,630 86,130 3,276,130 2 253,200 1 249,630 76,560 3,266,560 1 255,200 EL 245,630 6,990 3,256,990 95700 = 9570 Premums to be ? = amortized annually ) Amortization table for issuance of the bonds sold at ay for the first three years Annual Interest Periods Interest to I be paid Interest expenses to be recorded Discount un amortinged / Bond Amortization Discount I carrying value NIL 95,700 3,094,300 Issue NIL NIL Dati 86,130 | 3,103,870 9,5701 255,200 | 264,770 76,560 3,113,440 9,570 255,200 264,170 66,990 3,123,010 7 9570 13 | 255,200 | 269,970

Journal Entries for Interest expenses Interest expenses All Dr. 245,630 Promium on Bonds Dr. 9,570 - payable All هم ملحم to Interest payable At 2,55,200 2. |12/31/22 - Interest expenses Ak Dr. 264,770 To Discount on Bonds as payable Al To Interest payable Ak 255,200 longterms liabilities balance sheet for issuance of the bonds at 103 at December 31, 2022 SANDHILL Co. Balance sheet (Partial December 31, 2022 Long term liabilities Bonds payable 3,190,000 i Add : Premium on Bonds payable 86,130 3,276,130

Long terus liabilities balance sheet presentation for issuance of the bonds sold at ar at December 31, 2022 SANDHILL CO. Balance sheet (Partial) December 31, 2022 long terus liabilities Bonds payable 3,190,000 less: Discount on Bonds payable 86,130 Stetso 3,103,870

1.The bonds will be amortized to show the effect of discount/premium on the issue price.

2.When the bond is issued at discount the interest expenses will include the amortization cost of discount on bonds payable

3.When the bond is issued at a premium then the interest expenses will be reduced by the amortization benefit of premium on bonds payable.

4.However the interest payable will be the same in both cases as the payment to bond holders will be 8% on the facevalue of the bonds and not the issue price of the bond

5.Always interest is calculated on face value not on issue price.