Assignment_9_-_Lecture_Notes__1

1 issue bonds dr cash 96139 dr discount on bonds

Info icon This preview shows pages 2–6. Sign up to view the full content.

View Full Document Right Arrow Icon
1. Issue bonds Dr Cash $96,139 Dr Discount on Bonds Payable 3,861 Cr Bonds Payable $100,000 2. Semiannual payment Dr Interest Expense $4,886 Cr Discount on Bonds Payable* 386 Cr Cash $4,500 *3,861/10 periods = 386 The results: Interest expense is recorded at the effective rate, not coupon rate. The bond will be amortized to its face value. Carrying Amount of Bond (discount): Bonds payable – Discount on Bond Payable = Carrying amount of bond 1. At issue $100,000 - $3,861 = $96,139 2. After first interest payment $100,000 - $3,475 = $96,525 3. After the 2 nd interest payment $100,000 - $3,089 = $96,911
Image of page 2

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4. The Discount on Bonds Payable will decrease by the amortized amount with each interest payment. 5. At maturity: Carry amount = Bonds Payable (Discount has been amortized to zero.) The carrying amount of the bond will increase with each interest payment. After the final interest payment the Discount on Bonds Payable will be zero, the carrying amount $100,000. Premiums: Opposite of Discount Issue: Credit Premium on Bonds Payable Interest payment: Debit Premium on Bonds Payable Carrying amount of the bond is Bond Payable + Premium on Bonds Payable
Image of page 3
Notes Installment note – requires equal payments. Unsecure loan. Mortgage note – an installment note with collateral. Most home and car loans. Example: Purchase a $18,000 car with a 4 year, 7% note payable monthly. **** * **** Beginning *** ** Decrease Ending Time Carrying Note Interest in Notes Carrying Months Amount Payment Expense Payable Amount 1 18,000.00 431.0 3 105.00 326.03 17,673.97 2 17,673.97 431.0 3 103.10 327.93 17,346.03 3 17,346.03 431.0 3 101.19 329.85 17,016.19 4 17,016.19 431.0 3 99.26 331.77 16,684.41 5 16,684.41 431.0 3 97.33 333.71 16,350.71 6 16,350.71 431.0 3 95.38 335.65 16,015.05 7 16,015.05 431.0 3 93.42 337.61 15,677.44 8 15,677.44 431.0 3 91.45 339.58 15,337.86 9 15,337.86 431.0 3 89.47 341.56 14,996.30 10 14,996.30 431.0 3 87.48 343.55 14,652.75 11 14,652.75 431.0 3 85.47 345.56 14,307.19 12 14,307.19 431.0 3 83.46 347.57 13,959.62 * As interest decreases, more of the payment goes to paying down the principle . ** The decrease in the carrying amount decrease the amount interest charged . *** Car loan paymen t amount, always
Image of page 4

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
the same. **** The ending carrying amount for one period is the same as the beginni ng carrying amount for the next period. Journal Entries: 1. Issue: Dr Car18,000 Cr Notes Payable 18,000 (If note is for cash, cash would be debited.) 2. 1st payment of interest: Dr Interest Expense 105 Dr Notes Payable 326.03 Cr Cash 431.03 3.
Image of page 5
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern