Ch 14 and CH15 Questions.docx - Ch 14 and CH15 Questions:...

Ch 14 and CH15 Questions:
E14.4
E14.4 (LO 2 ) (Entries for Bond Transactions—Effective Interest) Foreman Inc. issued $800,000 of 10%, 20-year bonds on
January 1, 2020, at 102. Interest is payable semi-annually on July 1 and January 1. Foreman Inc. uses the effective interest
method of amortization for any bond premium or discount. Assume an effective yield of 9.75%. (With a market rate of 9.75%, the
issue price would be slightly higher. For simplicity, ignore this.)
Instructions
Prepare the journal entries to record the following (round to the nearest dollar):
1. The issuance of the bonds
2. The payment of interest and the related amortization on July 1, 2020
3. The accrual of interest and the related amortization on December 31, 2020
E14.7
E14.7 (LO 2 ) (Imputation of Interest) Two independent situations follow.
1. On January 1, 2020, Spartan Inc. bought land that had an assessed value of $390,000 at the time of purchase. A
$600,000, non–interest-bearing note due on January 1, 2023, was given in exchange. There was no established
exchange price for the land, and no ready market value for the note. The interest rate that is normally charged on a note
of this type is 12%.
-
1

2. On January 1, 2020, Geimer Furniture Ltd. borrowed $4 million (face value) from Aurora Inc., a major customer,
through a non–interest-bearing note due in four years. Because the note was non–interest-bearing, Geimer Furniture