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hw14solution

# hw14solution - Ch 14 Homework Q1 The following amortization...

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Ch 14 – Homework Q1) The following amortization and interest schedule reflects the issuance of 3-year bond by Gerona Company on January 1, 2006. However, the schedule is not completely prepared. Interest is payable on June 30, and December 31. The company uses an effective market interest rate method to amortize discount (or premium) of bonds. Amortization schedule of bond payable Date Cash Interest Amount amortized Book value 1 / 1 /2006 126,290 6 / 30/2006 6,000 5,052 948 125,342 12/31/2006 6,000 5,013 987 124,355 6 / 30/2007 6,000 4,974 1,026 123,329 12/31/2007 6,000 4,933 1,067 122,262 6/ 30/2008 6,000 4,891 1,109 121,153 12/31/2008 6,000 4,847 1,153 120,000 Instructions (a) Indicate the face value of bond, stated interest rate and market interest rate applied to the above amortization schedule of bond payable(Show your works). Face value of bond = 120,000 Market interest rate = (5,052/126,290)*2 = 8% Stated interest rate = (6,000/120,000)*2 = 10% (b) Prepare the journal entry to record the event on December 31, 2007 and December 31, 2008. Dec.31, 07 Dr, Interest expense 4,933 Premium on B/P 1,067 Cr. Cash 6,000 Dec. 31, 08 Dr. Interest expense 4,847 Premium on B/P 1,153 Cr. Cash 6,000 Dr. B/P 120,000 Cr. Cash 120,000

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Q2) On March 1, 2008, Pyne Furniture Co. issued \$700,000 of 10 percent bonds to yield 8 percent. Interest is payable semiannually on February 28 and August 31. The bonds mature in ten years. Cost of issuing bonds were \$50,000. The company amortizes the cost of issuing bond
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