Posted: February 5th, 2019
Intermediate Accounting Problems P14-5, P14-6, and P14-7
P14-5, P14-6, and P14-7
P14-5 (Comprehensive Bond Problem) In
each of the following independent cases the company closes its 5 books on
December 31.
1. Sanford Co. sells $500,000 of 10%
bonds on March 1, 2014. The bonds pay interest on September 1 and March 1. The
due date of the bonds is September 1, 2017. The bonds yield 12%. Give entries
through December 31, 2015.
2. Titania Co. sells $400,000 of 12%
bonds on June 1, 2014. The bonds pay interest on December 1 and June 1. The due
date of the bonds is June 1, 2018. The bonds yield 10%. On October 1, 2015,
Titania buys back $120,000 worth of bonds for $126,000 (includes accrued
interest). Give entries through December 1, 2016.
Instructions
For the two cases prepare all of the
relevant journal entries from the time of sale until the date indicated. Use
the effective-interest method for discount and premium amortization (construct
amortization tables where applicable). Amortize premium or discount on interest
dates and at year-end. (Assume that no reversing entries were made.)
P14-6 (Issuance of Bonds between
Interest Dates, Straight-Line, Redemption) Presented below are selected
transactions on the books of Simonson Corporation.
May 1, 2014
Dec. 31
Jan. 1, 2015 April 1
Dec. 31
Instructions
Bonds payable with a par value of
$900,000, which are dated January 1, 2014, are sold at 106 plus accrued
interest. They are coupon bonds, bear interest at 12% (payable annually at
January 1), and mature January 1, 2024. (Use interest expense account for
accrued interest.) Adjusting entries are made to record the accrued interest on
the bonds, and the amortiza- tion of the proper amount of premium. (Use
straight-line amortization.) Interest on the bonds is paid. Bonds with par
value of $360,000 are called at 102 plus accrued interest, and redeemed. (Bond
premium is to be amortized only at the end of each year.) Adjusting entries are
made to record the accrued interest on the bonds, and the proper amount of
premium amortized.
(Round to two decimal places.)
Prepare journal entries for the
transactions above.
P14-7 (Entries for Life Cycle of
Bonds) On April 1, 2014, Seminole Company sold 15,000 of its 11%, 15-year,
$1,000 face value bonds at 97. Interest payment dates are April 1 and October
1, and the company uses the straight-line method of bond discount amortization.
On March 1, 2015, Seminole took advantage of favorable prices of its stock to
extinguish 6,000 of the bonds by issuing 200,000 shares of its $10 par value
common stock. At this time, the accrued interest was paid in cash. The
companyâs stock was selling for $31 per share on March 1, 2015.
Instructions
Prepare the journal entries needed on
the books of Seminole Company to record the following.
(a) April 1, 2014: issuance of the bonds.
(b) October 1, 2014: payment of semiannual interest.
(c) December 31, 2014: accrual of interest expense.
(d) March 1, 2015:
extinguishment of 6,000 bonds. (No reversing entries made.)