Bus 344 chp 14 example exam question 3 entries for

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BUS 344 Chp 14 Example Exam Question #3 – Entries for Bonds Payable – Straight Line Amortization of Bond PremiumPrepare journal entries to record the following transactions relating to long-term bonds of Vinci, Inc.(Show your calculations.)(a)On June 1, 2008, Vinci, Inc. issued $400,000, 6% bonds for $391,760, which includesaccruedinterest. Interest is payable semiannually on February 1 and August 1 with the bonds maturingon February 1, 2018. The bonds are callable at 102.
(b)On August 1, 2008, Vinci paid first interest payment on the bonds and recorded amortization.Vinci uses straight-lineamortization.
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BUS 344 Chp 14 Example Exam Question #4 – Entries for Bonds Payable – Straight Line AmortizationPrepare the necessary journal entries to record the following transactions relating to the long-term issuance of bonds of Calvin Co. (assume straight line amortization):March 1/14Issued $200,000 face value Calvin Co. second mortgage, 8% bonds for $218,040, which includesaccrued interest. Interest is payable semiannually on December 1 and June 1 with the bonds maturing10 years from this past December 1. The bonds are callable at 102.March 1:Cash (given, includes the 3 months of interest)..................218,040Bonds Payable............................................................200,000Premium on Bonds Payable (plug)............................14,040Interest Payable ($200,000 × 8% × 3/12)..................4,000June 1/14Paid first semiannual interest on Calvin Co. bonds. (Use straight-line amortization of any premium ordiscount.)June 1:Interest payable ($200,000 × 8% × 3/12)...........................4,000Interest expense (plug)........................................................3,640Premium on Bonds Payable ($120 x 3 months)..................360Cash ($200,000 × 8% × 6/12)....................................8,000$14,040 / 117 months = $120 per month amort. of premiumNote: 10 yr bond x 12 months = 120 months total. Issued 3 months after = 117 months o/sDecember 1/14Paid second semiannual interest payment on Calvin Co. bonds Dec. 1: Interest Expense (plug).............................................................7,280Premium on Bonds Payable ($120 x 6)....................................720Cash............................................................................8,000$120/month amort. x 6 = $720Purchased $100,000 face value bonds at the 102 call price in accordance with the provisions of thebond indenture.Bonds Payable.....................................................................100,000Premium on Bonds Payable ...............................................6,480Gain on Redemption of Bonds (plug)........................4,480Cash ($100,000 x 1.02)..............................................102,000($14,040cr – $360dr – $720dr = $12,960crunamortized premium x 1/2 prem. retired = $6,480100,000/200,000 = 50% retiredCalculations:Premium $14,040 Less premium already amortized (9 mths x $120)( 1,080Premium remaining $12,960 x 50% = $6,480
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