Question

Instructions: Problem is to be worked independently. All parts, excluding part 4, should be neatly handwritten in pencil and all work shown. January 1, 2019: Excel Corporation issued 10 year, 7% bonds with a face value of $1,550,000. The bonds were sold to yield 8%. Interest is payable annually on January 1. 1. What is the issue price of the bonds? (Show calculation or financial calculator inputs.) 2. Record the bond issuance on 1/1/19. Accounts Debit Credit 3. Assume the company prepares financial statements annually on December 31. Prepare the appropriate adjusting entries for December 31, 2019 for interest and for amortization of the discount or premium if the company used straight-line amortization. 12/31/19 Accounts Debit Credit For the remainder of the problem, assume effective interest method of amortization is used. 4. Using EXCEL, prepare an amortization table for the entire bond term. Table should be properly labeled and neatly presented on one page. Amounts should have commas and be rounded to the nearest dollar. Print and attach the table to this paper. HINTS: For the Date Column, you can use the EDATE Function to easily add 12 months to your starting date and copy down to create labels for each row. To avoid rounding differences, use the PV function to calculate your initial present value (carrying value) on the issue date. Set up formulas for each cell and round all amounts to the nearest dollars (do not manually compute and key in amounts). 5. Repeat Question 3. using the effective interest method of amortization. 12/31/19 Accounts Debit Credit

Problems 6-8. Please show all work. Thanks

Answer 1

Required 6.: Journal entry to record interest and amortization of bond discount on March 31, 2019 Carrying amount of Bonds as at 01/01/2019 Interest expense for the quarter ending Mar. 31, 2019 ($1,445,994 x 8% x 3/12) $1,445,994 $28,920 Face value of Bonds Interest payable for the quarter ending Mar. 31, 2019 ($1,550,000 x 7% x 3/12) $1,550,000 $27,125 Discount amortization for the quarter ending Mar 31, 2019 ($28,920 - $27,125) $1,795 Credit Debit $28,920 Date Accounts March 31, 2019 Interest Expense Discount on Bonds Payable Interest Payable (To record interest expense and discount amortization on March 31, 2019) $1,795 $27,125 Required 7.: Balance sheet presentation as at March 31, 2019 Balance Sheet (Partial) At March 31, 2019 Liabilities Current liabilities Interest payable $27,125 Long-term Liabilities Bonds Payable Less: Discount on Bonds Payable ($104,006 - $1,795) $1,550,000 $102,211 $1,447,789 Required 8.: Computation of Gain or loss on redemption of bonds on January 1, 2025 Face value of Bonds Less: Unamortized discount on Bonds payable as at 01/01/2025 Carrying amount of Bonds as at 01/01/2025 $1,550,000 ($51,338) $1,498,662 Less: Cash paid to redeem the Bonds ($1,550,000 x 100/100) ($1,550,000) Gain or (Loss) on Bonds redemption ($51,338) Loss on call the bonds $51,338 Necessary Journal entries as at January 1, 2025 Credit Date Jan. 01, 2025 Debit $108,500 Accounts Interest Payable Cash (To record the payment of interest) $108,500 Jan. 01, 2025 $1,550,000 $51,338 Bonds Payable Loss on Redemption of Bonds Discount on Bonds Payable Cash (To record the call of the bonds) $51,338 $1,550,000