Question

>Continuing Problem P12-47 Describing bonds, journalizing transactions for bonds payable using the straight-line amortization method, and journalizing transactions for a mortgage payable This problem continues the Canyon Canoe Company situation from Chapter 11. Canyon Canoe Company is considering raising additional capital for further expansion. The company wants to finance a new business venture into guided trips down the Amazon River in South America. Additionally, the company wants to add another building on their land to offer more services for local customers. Canyon Canoe Company plans to raise the capital by issuing $210,000 of 7.5%, six-year bonds on January 2, 2020. The bonds pay interest semiannually on June 30 and December 31 The company receives $208,476 when the bonds are issued. The company also issues a mortgage payable for $450,000 on January 2, 2020. The proceeds from the mortgage will be used to construct the new building. The mortgage requires annual payments of $45,000 plus interest for ten years, payable on December 31. The mortgage interest rate is 8%. Requirements 1. Will the bonds issue at face value, a premium, or a discount? 2. Record the following transactions. Include dates and round to the nearest dollar. Omit explanations. a. Cash received from the bond issue. b.Cash received from the mortgage payable. PIC COLLAGE

Answer 1

1) Company received $208476 on issue of Bonds which has Face value $210000, hence the bond is issued at Discount amounting to $1524.

2)

a) Company has issued the Bonds and received $208476 which has Face Value of $210000.

Therefore, the company has received $208476 on Jan 2 2020.

b) Company has received $450000 on Jan 2 2020.

c) Semiannual Bond Interest Payment=($210000*7.5%)/2=$7875

Amortization of Discount of $1524 over 6 years using Straight Line Basis=$1524/6=$254

d) Payment on Mortgage payable=$45000

Interest Paid annually=$450000*8%=$36000

3) Total Interest Expense =$36000+$7875+$7875=$51750.