Long-Term Liabilities

S12A-13 Determining present value

Your grandfather would like to share some of his fortune with you. He offers to give

you money under one of the following scenarios (you get to choose):

2. \)49,650 (lump sum) now

3. $100,450 (lump sum) six years from now

C H A P T E R 1 2

Requirements

1. Calculate the present value of each scenario using a 6% discount rate. Which scenario

yields the highest present value? Round to the nearest dollar.

2. Would your preference change if you used a 12% discount rate?

Determining the present value of bond at issuance

On December 31, 2018, when the market interest rate is 12%, Benson Realty issues

$600,000 of 9.25%, 10-year bonds payable. The bonds pay interest semi annually.

Determine the present value of the bonds at issuance.

Determining future value

David is entering high school and is determined to save money for college. David feels

he can save $5,000 each year for the next four years from his part-time job. If David is

able to invest at 6%, how much will he have when he starts college?

Using the effective-interest amortization method

On December 31, 2018, when the market interest rate is 8%, Biggs Realty issues

\(450,000 of 5.25%, 10-year bonds payable. The bonds pay interest semiannually. The

present value of the bonds at issuance is \)365,732.

Requirements

1. Prepare an amortization table using the effective interest amortization method for

the first two semiannual interest periods. (Round to the nearest dollar.)

2. Using the amortization table prepared in Requirement 1, journalize issuance of the

bonds and the first two interest payments.

Using the effective-interest amortization method

On December 31, 2018, when the market interest rate is 8%, Biggs Realty issues

\(450,000 of 5.25%, 10-year bonds payable. The bonds pay interest semiannually. The

present value of the bonds at issuance is \)365,732.

Requirements

1. Prepare an amortization table using the effective interest amortization method for

the first two semiannual interest periods. (Round to the nearest dollar.)

2. Using the amortization table prepared in Requirement 1, journalize issuance of the

bonds and the first two interest payments.

Using the effective-interest amortization method

On December 31, 2018, when the market interest rate is 6%, Benson Realty issues

\(700,000 of 6.25%, 10-year bonds payable. The bonds pay interest semiannually. Benson

Realty received \)713,234 in cash at issuance.

Requirements

1. Prepare an amortization table using the effective interest amortization method for

the first two semiannual interest periods. (Round to the nearest dollar.)

2. Using the amortization table prepared in Requirement 1, journalize issuance of the

bonds and the first two interest payments.

Using the effective-interest amortization method

On December 31, 2018, when the market interest rate is 6%, Benson Realty issues

\(700,000 of 6.25%, 10-year bonds payable. The bonds pay interest semiannually. Benson

Realty received \)713,234 in cash at issuance.

Requirements

1. Prepare an amortization table using the effective interest amortization method for

the first two semiannual interest periods. (Round to the nearest dollar.)

2. Using the amortization table prepared in Requirement 1, journalize issuance of the

bonds and the first two interest payments.

Accounting for long-term notes payable transactions

Consider the following note payable transactions of Caleb Video Productions.

2018

Oct. 1 Purchased equipment costing \(80,000 by issuing a five-year, 8% note

payable. The note requires annual principal payments of \)16,000 plus

interest each October 1.

Dec. 31 Accrued interest on the note payable.

2019

Oct. 1 Paid the first installment on the note.

Dec. 31 Accrued interest on the note payable.

Requirements

1. Journalize the transactions for the company.

2. Considering the given transactions only, what are Caleb Video Productions’ total

liabilities on December 31, 2019?

Accounting for long-term notes payable transactions

Consider the following note payable transactions of Caleb Video Productions.

2018

Oct. 1 Purchased equipment costing \(80,000 by issuing a five-year, 8% note payable. The note requires annual principal payments of \)16,000 plus interest each October 1.

Dec. 31 Accrued interest on the note payable.

2019

Oct. 1 Paid the first installment on the note.

Dec. 31 Accrued interest on the note payable.

Requirements

1. Journalize the transactions for the company.

2. Considering the given transactions only, what are Caleb Video Productions’ total liabilities on December 31, 2019?

Kellerman Company purchased a building and land with a fair market value of \(550,000 (building, \)425,000, and land, \(125,000) on January 1, 2018. Kellerman signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of \)3,940.37. Round to two decimal places. Explanations are not required for journal entries. 

Requirements 

1. Journalize the mortgage payable issuance on January 1, 2018. 
2. Prepare an amortization schedule for the first two payments. 
3. Journalize the first payment on January 31, 2018. 
4. Journalize the second payment on February 28, 2018.

Preparing an amortization schedule and recording mortgages payable

entries

Kellerman Company purchased a building and land with a fair market value of

\(550,000 (building, \)425,000, and land, \(125,000) on January 1, 2018. Kellerman

signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of

\)3,940.37. Round to two decimal places. Explanations are not required for journal

entries.

Requirements

1. Journalize the mortgage payable issuance on January 1, 2018.

2. Prepare an amortization schedule for the first two payments.

3. Journalize the first payment on January 31, 2018.

4. Journalize the second payment on February 28, 2018.

Preparing an amortization schedule and recording mortgages payable

entries

Kellerman Company purchased a building and land with a fair market value of

\(550,000 (building, \)425,000, and land, \(125,000) on January 1, 2018. Kellerman

signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of

\)3,940.37. Round to two decimal places. Explanations are not required for journal

entries.

Requirements

1. Journalize the mortgage payable issuance on January 1, 2018.

2. Prepare an amortization schedule for the first two payments.

3. Journalize the first payment on January 31, 2018.

4. Journalize the second payment on February 28, 2018.

Preparing an amortization schedule and recording mortgages payable

entries

Kellerman Company purchased a building and land with a fair market value of

\(550,000 (building, \)425,000, and land, \(125,000) on January 1, 2018. Kellerman

signed a 20-year, 6% mortgage payable. Kellerman will make monthly payments of

\)3,940.37. Round to two decimal places. Explanations are not required for journal

entries.

Requirements

1. Journalize the mortgage payable issuance on January 1, 2018.

2. Prepare an amortization schedule for the first two payments.

3. Journalize the first payment on January 31, 2018.

4. Journalize the second payment on February 28, 2018.

Analyzing alternative plans to raise money

SB Electronics is considering two plans for raising \(4,000,000 to expand operations.

Plan A is to issue 9% bonds payable, and plan B is to issue 500,000 shares of common

stock. Before any new financing, SB Electronics has net income of \)350,000 and

300,000 shares of common stock outstanding. Management believes the company can

use the new funds to earn additional income of $700,000 before interest and taxes.

The income tax rate is 30%. Analyze the SB Electronics situation to determine which

plan will result in higher earnings per share. Use Exhibit 12-6 as a guide.

Determining bond prices and interest expense

Jones Company is planning to issue $490,000 of 9%, five-year bonds payable to

borrow for a major expansion. The owner, Shane Jones, asks your advice on some

related matters.

Requirements

1. Answer the following questions:

a. At what type of bond price Jones Company will have total interest expense

equal to the cash interest payments?

b. Under which type of bond price will Jones Company’s total interest expense be

greater than the cash interest payments?

c. If the market interest rate is 12%, what type of bond price can Jones Company

expect for the bonds?

2. Compute the price of the bonds if the bonds are issued at 89.

3. How much will Jones Company pay in interest each year? How much will Jones

Company’s interest expense be for the first year?

Determining bond prices and interest expense

Jones Company is planning to issue $490,000 of 9%, five-year bonds payable to

borrow for a major expansion. The owner, Shane Jones, asks your advice on some

related matters.

Requirements

1. Answer the following questions:

a. At what type of bond price Jones Company will have total interest expense

equal to the cash interest payments?

b. Under which type of bond price will Jones Company’s total interest expense be

greater than the cash interest payments?

c. If the market interest rate is 12%, what type of bond price can Jones Company

expect for the bonds?

2. Compute the price of the bonds if the bonds are issued at 89.

3. How much will Jones Company pay in interest each year? How much will Jones

Company’s interest expense be for the first year?

Determining bond prices and interest expense

Jones Company is planning to issue $490,000 of 9%, five-year bonds payable to

borrow for a major expansion. The owner, Shane Jones, asks your advice on some

related matters.

Requirements

1. Answer the following questions:

a. At what type of bond price Jones Company will have total interest expense

equal to the cash interest payments?

b. Under which type of bond price will Jones Company’s total interest expense be

greater than the cash interest payments?

c. If the market interest rate is 12%, what type of bond price can Jones Company

expect for the bonds?

2. Compute the price of the bonds if the bonds are issued at 89.

3. How much will Jones Company pay in interest each year? How much will Jones

Company’s interest expense be for the first year?

Journalizing bond issuance and interest payments

On June 30, Parker Company issued 11%, five-year bonds payable with a face value

of $120,000. The bonds are issued at face value and pay interest on June 30 and

December 31.

Requirements

1. Journalize the issuance of the bonds on June 30.

2. Journalize the semiannual interest payment on December 31

Journalizing bond issuance and interest payments

On June 30, Parker Company issued 11%, five-year bonds payable with a face value

of $120,000. The bonds are issued at face value and pay interest on June 30 and

December 31.

Requirements

1. Journalize the issuance of the bonds on June 30.

2. Journalize the semiannual interest payment on December 31

Journalizing bond issuance and interest payments

On June 30, Daughtry Limited issues 8%, 20-year bonds payable with a face value of $130,000. The bonds are issued at 86 and pay interest on June 30 and December 31.

Requirements

1. Journalize the issuance of the bonds on June 30.

2. Journalize the semi-annual interest payment and amortization of bond discount on December 31.

Journalizing bond transactions

Anderson Company issued $70,000 of 10-year, 9% bonds payable on January 1, 2018. Anderson Company pays interest each January 1 and July 1 and amortizes discount or premium by the straight-line amortization method. The company can issue its bonds payable under various conditions.

Requirements

1. Journalize Anderson Company’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at face value. Explanations are not required.

2. Journalize Anderson Company’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at 92. Explanations are not required.

3. Journalize Anderson Company’s issuance of the bonds and first semiannual interest payment assuming the bonds were issued at 103. Explanations are not required.

4. Which bond price results in the most interest expense for Anderson Company?

Explain in detail.

Journalizing bond issuance and interest payments

On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with a

face value of $240,000. The bonds are issued at 104 and pay interest on June 30 and

December 31.

Requirements

1. Journalize the issuance of the bonds on January 1, 2018.

2. Journalize the semiannual interest payment and amortization of bond premium on

June 30, 2018.

3. Journalize the semiannual interest payment and amortization of bond premium on

December 31, 2018.

4. Journalize the retirement of the bond at maturity, assuming the last interest payment

has already been recorded. (Give the date).

Journalizing bond issuance and interest payments

On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with aface value of $240,000. The bonds are issued at 104 and pay interest on June 30 andDecember 31.

Requirements

1. Journalize the issuance of the bonds on January 1, 2018.

2. Journalize the semiannual interest payment and amortization of bond premium onJune 30, 2018.

3. Journalize the semiannual interest payment and amortization of bond premium onDecember 31, 2018.

4. Journalize the retirement of the bond at maturity, assuming the last interest paymenthas already been recorded. (Give the date).

Retiring bonds payable before maturity

CoastalView Magazine issued $600,000 of 15-year, 5% callable bonds payable on July

31, 2018, at 94. On July 31, 2021, CoastalView called the bonds at 101. Assume annual

interest payments.

Requirements

1. Without making journal entries, compute the carrying amount of the bonds payable

at July 31, 2021.

2. Assume all amortization has been recorded properly. Journalize the retirement of

the bonds on July 31, 2021. No explanation is required.

Retiring bonds payable before maturity

CoastalView Magazine issued $600,000 of 15-year, 5% callable bonds payable on July31, 2018, at 94. On July 31, 2021, CoastalViewcalled the bonds at 101. Assume annualinterest payments.

Requirements

1. Without making journal entries, compute the carrying amount of the bonds payableat July 31, 2021.

2. Assume all amortization has been recorded properly. Journalize the retirement ofthe bonds on July 31, 2021. No explanation is required.

Reporting current and long-term liabilities

Pediatric Dispensary borrowed \(390,000 on January 2, 2018, by issuing a 15% serial

bond payable that must be paid in three equal annual installments plus interest for the

year. The first payment of principal and interest comes due January 2, 2019. Complete

the missing information. Assume the bonds are issued at face value.

December 31

2018 2019 2020

Current Liabilities:

Bonds Payable \) \( \)

Interest Payable

Long-term Liabilities:

Bonds Payable

Reporting liabilities

At December 31, MediStat Precision Instruments owes \(52,000 on Accounts

Payable, Salaries Payable of \)12,000, and Income Tax Payable of \(10,000. MediStat

also has \)300,000 of Bonds Payable that were issued at face value that require

payment of a \(35,000 installment next year and the remainder in later years. The

bonds payable require an annual interest payment of \)4,000, and MediStat still

owes this interest for the current year. Report MediStat’s liabilities on its classified

balance sheet on December 31, 2018.

Computing the debt to equity ratio

Ludwig Corporation has the following data as of December 31, 2018:

Total Current Liabilities \( 36,210 Total Stockholders’ Equity \) ?

Total Current Assets 58,200 Other Assets 36,800

Long-term Liabilities 139,630 Property, Plant, and Equipment, Net 206,440

Compute the debt to equity ratio at December 31, 2018.

Determining the present value of bonds payable

Interest rates determine the present value of future amounts. (Round to the nearest

dollar.)

Requirements

1. Determine the present value of 10-year bonds payable with face value of $86,000

and stated interest rate of 14%, paid semiannually. The market rate of interest is

14% at issuance.

2. Same bonds payable as in Requirement 1, but the market interest rate is 16%.

3. Same bonds payable as in Requirement 1, but the market interest rate is 12%.

Determining the present value of bonds payable

Interest rates determine the present value of future amounts. (Round to the nearest

dollar.)

Requirements

1. Determine the present value of 10-year bonds payable with face value of $86,000

and stated interest rate of 14%, paid semiannually. The market rate of interest is

14% at issuance.

2. Same bonds payable as in Requirement 1, but the market interest rate is 16%.

3. Same bonds payable as in Requirement 1, but the market interest rate is 12%.

Determining the present value of bonds payable

Interest rates determine the present value of future amounts. (Round to the nearest

dollar.)

Requirements

1. Determine the present value of 10-year bonds payable with face value of $86,000

and stated interest rate of 14%, paid semiannually. The market rate of interest is

14% at issuance.

2. Same bonds payable as in Requirement 1, but the market interest rate is 16%.

3. Same bonds payable as in Requirement 1, but the market interest rate is 12%.

Journalizing bond transactions using the effective-interest

amortization method

Journalize issuance of the bond and the first semiannual interest payment undereach of the following three assumptions. The company amortizes bond premiumand discount by the effective-interest amortization method. Explanations are notrequired.

1. Seven-year bonds payable with face value of \(83,000 and stated interest rate of10%, paid semiannually. The market rate of interest is 10% at issuance. The presentvalue of the bonds at issuance is \)83,000.

2. Same bonds payable as in assumption 1, but the market interest rate is 16%. Thepresent value of the bonds at issuance is \(62,433.

3. Same bonds payable as in assumption 1, but the market interest rate is 8%. Thepresent value of the bonds at issuance is \)91,727.

Journalizing liability transactions and reporting them on the balance

sheet

The following transactions of Johnson Pharmacies occurred during 2018 and 2019:

2018

Mar. 1 Borrowed \(450,000 from Coconut Creek Bank. The 15-year, 5% note requires

payments due annually, on March 1. Each payment consists of \)30,000 principal

plus one year’s interest.

Dec. 1 Mortgaged the warehouse for \(250,000 cash with Saputo Bank. The mortgage

requires monthly payments of \)8,000. The interest rate on the note is 12% and

accrues monthly. The first payment is due on January 1, 2019.

31 Recorded interest accrued on the Saputo Bank note.

31 Recorded interest accrued on the Coconut Creek Bank note.

2019

Jan. 1 Paid Saputo Bank monthly mortgage payment.

Feb. 1 Paid Saputo Bank monthly mortgage payment.

Mar. 1 Paid Saputo Bank monthly mortgage payment.

1 Paid first installment on note due to Coconut Creek Bank.

Requirements

1. Journalize the transactions in the Johnson Pharmacies general journal. Round to

the nearest dollar. Explanations are not required.

2. Prepare the liabilities section of the balance sheet for Johnson Pharmacies on

March 1, 2019 after all the journal entries are recorded.

Journalizing liability transactions and reporting them on the balance

sheet

The following transactions of Johnson Pharmacies occurred during 2018 and 2019:

2018

Mar. 1 Borrowed \(450,000 from Coconut Creek Bank. The 15-year, 5% note requires

payments due annually, on March 1. Each payment consists of \)30,000 principal

plus one year’s interest.

Dec. 1 Mortgaged the warehouse for \(250,000 cash with Saputo Bank. The mortgage

requires monthly payments of \)8,000. The interest rate on the note is 12% and

accrues monthly. The first payment is due on January 1, 2019.

31 Recorded interest accrued on the Saputo Bank note.

31 Recorded interest accrued on the Coconut Creek Bank note.

2019

Jan. 1 Paid Saputo Bank monthly mortgage payment.

Feb. 1 Paid Saputo Bank monthly mortgage payment.

Mar. 1 Paid Saputo Bank monthly mortgage payment.

1 Paid first installment on note due to Coconut Creek Bank.

Requirements

1. Journalize the transactions in the Johnson Pharmacies general journal. Round to

the nearest dollar. Explanations are not required.

2. Prepare the liabilities section of the balance sheet for Johnson Pharmacies on

March 1, 2019 after all the journal entries are recorded.

Analyzing, journalizing, and reporting bond transactions

Danny’s Hamburgers issued 6%, 10-year bonds payable at 90 on December 31, 2018.

At December 31, 2020, Danny reported the bonds payable as follows:

Long-term Liabilities:

Bonds Payable \( 600,000

Less: Discount on Bonds Payable (48,000) \) 552,000

Danny’s pays semiannual interest each June 30 and December 31.

Requirements

1. Answer the following questions about Danny’s bonds payable:

a. What is the maturity value of the bonds?

b. What is the carrying amount of the bonds at December 31, 2020?

c. What is the semiannual cash interest payment on the bonds?

d. How much interest expense should the company record each year?

2. Record the June 30, 2020, semiannual interest payment and amortization of

discount.

Analyzing and journalizing bond transactions

On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds payable with face value of $600,000. The bonds pay interest on June 30 and December 31.

Requirements

1. If the market interest rate is 7% when NCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.

2. If the market interest rate is 9% when NCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.

3. The issue price of the bonds is 92. Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment has already been recorded.

Analyzing and journalizing bond transactions

On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds payable with face value of $600,000. The bonds pay interest on June 30 and December 31.

Requirements

1. If the market interest rate is 7% when NCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.

2. If the market interest rate is 9% when NCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.

3. The issue price of the bonds is 92. Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment has already been recorded.

Analyzing and journalizing bond transactions

On January 1, 2018, Nurses Credit Union (NCU) issued 8%, 20-year bonds payable

with face value of $600,000. The bonds pay interest on June 30 and December 31.

Requirements

1. If the market interest rate is 7% when NCU issues its bonds, will the bonds be

priced at face value, at a premium, or at a discount? Explain.

2. If the market interest rate is 9% when NCU issues its bonds, will the bonds be

priced at face value, at a premium, or at a discount? Explain.

3. The issue price of the bonds is 92. Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the last

interest payment has already been recorded.

Analyzing and journalizing bond transactions

On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payable with face value of $1,000,000.These bonds pay interest on June 30 and December 31.The issue price of the bonds is 109.Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment has already been recorded.

Analyzing and journalizing bond transactions

On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payable with face value of $1,000,000. These bonds pay interest on June 30 and December 31. The issue price of the bonds is 109.Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment has already been recorded.

Analyzing and journalizing bond transactions

On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payable with face value of $1,000,000. These bonds pay interest on June 30 and December 31. The issue price of the bonds is 109.Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment has already been recorded.

Analyzing and journalizing bond transactions

On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payable with face value of $1,000,000. These bonds pay interest on June 30 and December 31. The issue price of the bonds is 109.Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment has already been recorded.

Reporting liabilities on the balance sheet and computing debt to equity ratio. The accounting records of Pack Leader Wireless include the following as of December 31, 2018:

Accounts Payable \( 77,000 Salaries Payable \) 7,500

Mortgages Payable (long-term) 73,000 Bonds Payable (current portion) 25,000

Interest Payable 18,000 Premium on Bonds Payable 10,000

Bonds Payable (long-term) 63,000 Unearned Revenue (short-term) 2,700

Total Stockholders’ Equity 140,000

Requirements

1. Report these liabilities on the Pack Leader Wireless balance sheet, including headings and totals for current liabilities and long-term liabilities.

2. Compute Pack Leader Wireless’s debt to equity ratio at December 31, 2018.

Reporting liabilities on the balance sheet and computing debt to equity ratio. The accounting records of Pack Leader Wireless include the following as of December 31, 2018:

Accounts Payable \( 77,000 Salaries Payable \) 7,500

Mortgages Payable (long-term) 73,000 Bonds Payable (current portion) 25,000

Interest Payable 18,000 Premium on Bonds Payable 10,000

Bonds Payable (long-term) 63,000 Unearned Revenue (short-term) 2,700

Total Stockholders’ Equity 140,000

Requirements

1. Report these liabilities on the Pack Leader Wireless balance sheet, including headings and totals for current liabilities and long-term liabilities.

2. Compute Pack Leader Wireless’s debt to equity ratio at December 31, 2018.

Determining the present value of bonds payable and journalizing

using the effective-interest amortization method

Brad Nelson, Inc. issued $600,000 of 7%, six-year bonds payable on January 1, 2018.

The market interest rate at the date of issuance was 6%, and the bonds pay interest

semiannually.

Requirements

1. How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.)

2. Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments (Round to the nearest dollar.)

3. Journalize the issuance of the bonds on January 1, 2018, and the first and second payments of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.

Determining the present value of bonds payable and journalizing using the effective-interest amortization method Brad Nelson, Inc. issued \(600,000 of 7%, six-year bonds payable on January 1, 2018.

The market interest rate at the date of issuance was 6%, and the bonds pay interest semiannually.

Learning Objectives 2, 3, 4 

3. June 30, 2018, Interest Expense \)25,200

Learning Objectives 2, 3, 4

June 30, 2018, Interest Expense $37,750

C H A P T E R 1 2

Requirements

1. How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.)

2. Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments (Round to the nearest dollar.)

3. Journalize the issuance of the bonds on January 1, 2018, and the first and second payments of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.

Determining the present value of bonds payable and journalizing using the effective-interest amortization method Brad Nelson, Inc. issued \(600,000 of 7%, six-year bonds payable on January 1, 2018.

The market interest rate at the date of issuance was 6%, and the bonds pay interest semiannually.

Learning Objectives 2, 3, 4 

3. June 30, 2018, Interest Expense \)25,200

Learning Objectives 2, 3, 4

June 30, 2018, Interest Expense $37,750

C H A P T E R 1 2

Requirements

1. How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.)

2. Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments (Round to the nearest dollar.)

3. Journalize the issuance of the bonds on January 1, 2018, and the first and second payments of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.

Analyzing and journalizing bond transactions

On January 1, 2018, Doctors Credit Union (DCU) issued 7%, 20-year bonds payable with face value of $200,000. The bonds pay interest on June 30 and December 31.

Requirements

1. If the market interest rate is 5% when DCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.

2. If the market interest rate is 8% when DCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.

3. The issue price of the bonds is 93. Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment has already been recorded.

Determining the present value of bonds payable and journalizing using the effective-interest amortization method Relaxation, Inc. is authorized to issue 7%, 10-year bonds payable. On January 1, 2018, when the market interest rate is 12%, the company issues $300,000 of the bonds. The bonds pay interest semiannually.

Requirements

1. How much cash did the company receive upon issuance of the bonds payable? (Round to the nearest dollar.)

2. Prepare an amortization table for the bond using the effective-interest method, through the first two interest payments (Round to the nearest dollar.)

3. Journalize the issuance of the bonds on January 1, 2018, and the first and second payments of the semiannual interest amount and amortization of the bonds on June 30, 2018, and December 31, 2018. Explanations are not required.

Journalizing liability transactions and reporting them on the balance sheet

The following transactions of Great Value Pharmacies occurred during 2018 and 2019:

2018 

Mar. 1 Borrowed \(390,000 from Bartow Bank. The six-year, 13% note requires payments due annually, on March 1. Each payment consists of \)65,000 principal plus one year’s interest.

Dec. 1 Mortgaged the warehouse for \(350,000 cash with Saylor Bank. The mortgage requires monthly payments of \)7,000. The interest rate on the note is 9% and accrues monthly. The first payment is due on January 1, 2019.

31 Recorded interest accrued on the Saylor Bank note.

31 Recorded interest accrued on the Bartow Bank note.

2019

Jan. 1 Paid Saylor Bank monthly mortgage payment.

Feb. 1 Paid Saylor Bank monthly mortgage payment.

Mar. 1 Paid Saylor Bank monthly mortgage payment.

1 Paid first installment on note due to Bartow Bank.

Requirements

1. Journalize the transactions in the Great Value Pharmacies general journal. Round to the nearest dollar. Explanations are not required.

2. Prepare the liabilities section of the balance sheet for Great Value Pharmacies on March 1, 2019 after all the journal entries are recorded.