Question

Journalize the following transactions

2017

Jan 2. Issued 7 percent 10 year bond with maturity value of $5,000,000 at 97.00.

Jan 2. Signed a five year capital lease on equipment. The agreement requires annual lease payment of $400,000, with the first payment due immediatelt( BGN). The present value of the five lease payments is $1,724,851 (8 percent is the interest rate).

July 2. Paid semi annual interest and amortized the discount by the straight line method on the 7 percent bonds

Dec 31. Accrued semi annual interest expense and amortized the discounts by the SLM on the 7 perecent bonfd.

31. Recorded amortization on the leased equipment using SLM ( five years )

31. Accrued interst expense at 8 percent on the lease liability.

2027

Jan 2. Paid the 7 percent bonds at maturity. ( Ignore the final interest payment).

Show calculations for every transactions.

Answer 1

Journalize Journal Enteries Date Particulars 2.1.2017 Cash a/c Dr. Discount on Bonds Payable a/c Dr. To Bonds Payable (To issue $5,000,000 7%, 10-year bonds at 97) Debit in $ Credit in $ 4850000 150000 5000000 2.1.2017 1724851 400000 1324851 Leased Equipment a/c Dr. To Cash To Capital Lease Liability (PV of future lease payments) (To acquire equipment and make the first annual payment on a capital lease. PMT - $400,000, I/Y-8, FV-O, N-5) 2.7.2017 Interest Expense a/c Dr. 182500 To Cash ($5,000,000 x 7% x 6/12) 175000 To Discount on Bonds Payable ($150,000/20) 7500 (To pay semi-annual interest at 7% and amortize discount on $5,000,000 bonds.) 31.12.2017 Interest Expense a/c Dr. 182500 To Interest Payable 175000 To Discount on Bonds Payable 7500 (To accrue semi-annual interest expense on bonds payable and amortize discount) 31.12.2017 Amortization Expense a/c Dr. 344970 To Accumulated Amortization-Leased Equipment (To record amortization on $1,724,851 leased equipment over five years.) 344970 31.12.2017 Interest Expense a/c Dr. 105988 To Lease Liability To accrue interest expense on the lease liability ($1,324,851 x 8%). 105988 5000000 2.1.2027 Bonds Payable a/c Dr. To Cash (To record payment of bonds at maturity) 5000000