Chapter 14

Procter and Gamble’s 8% bonds due in 2024 were reported as selling for 126.987. Were the bonds selling at a premium or at a discount? Explain.

Grodski Co. produces and distributes semiconductors for use by computer manufacturers. Grodski Co. issued $24,000,000 of 20-year, 10% bonds on April 1 of the current year, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions for the current year: Apr. 1. Issued the bonds for cash at their face amount. Oct. 1. Paid the interest on the bonds. Dec.31. Recorded accrued interest for three months.

On the first day of its fiscal year, Robbins Company issued \(50,000,000 of five-year, 8% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at an effective interest rate of 11%, resulting in Robbins Company receiving cash of \)44,346,760. a. Journalize the entries to record the following: 1\. Sale of the bonds. 2\. First semiannual interest payment. (Amortization of discount is to be recorded annually.) 3\. Second semiannual interest payment. 4 . Amortization of discount at the end of the first year, using the straight- line method. (Round to the nearest dollar.) b. Determine the amount of the bond interest expense for the first year.

Daan Corporation wholesales repair products to equipment manufacturers. On March 1, 2010, Daan Corporation issued \(24,000,000 of five-year, 12% bonds at an effective interest rate of 10%, receiving cash of \)25,853,146. Interest is payable semiannually on March 1 and September 1. Journalize the entries to record the following: a. Sale of bonds on March 1, 2010. b. First interest payment on September 1, 2010, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.)

Polders Corp., a wholesaler of office equipment, issued $16,000,000 of 20-year, 11% callable bonds on April 1, 2010, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions: 2010 Apr. 1. Issued the bonds for cash at their face amount. Oct. 1. Paid the interest on the bonds. 2014 Oct. 1. Called the bond issue at 102, the rate provided in the bond indenture. (Omit entry for payment of interest.)

Vidovich Corp. produces and sells soccer equipment. To finance its operations, Vidovich Corp. issued $15,000,000 of 30-year, 14% callable bonds on January 1 , 2010, with interest payable on January 1 and July 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions: 2010 Jan. 1. Issued the bonds for cash at their face amount. July 1. Paid the interest on the bonds. 2016 July 1. Called the bond issue at 98, the rate provided in the bond indenture. (Omit entry for payment of interest.)

On the first day of the fiscal year, Hammond Company obtained a \( 44,000, seven-year, 5% installment note from Vegas Bank. The note requires annual payments of \)7,604, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of \(2,200 and principal repayment of \)5,404. a. Journalize the entries to record the following: 1\. Issued the installment notes for cash on the first day of the fiscal year. 2\. Paid the first annual payment on the note. b. Determine the amount of bond interest expense for the first year.

On January 1, 2010, Guiado Company obtained a \(140,000, 10-year, 11% installment note from Best Bank. The note requires annual payments of \)23,772, beginning on December 31, 2010. Journalize the entries to record the following: 2010 Jan. 1 Issued the notes for cash at their face amount. Dec. 31 Paid the annual payment on the note, which consisted of interest of \(15,400 and principal of \)8,372. 2019 Dec. 31 Paid the annual payment on the note, which consisted of interest of \(2,353 and principal of \)21,419.

On January 1, 2010, Zinn Company obtained a \(52,000, four-year, 6.5% installment note from Fidelity Bank. The note requires annual payments of \)15,179, beginning on December 31, 2011. a. Prepare an amortization table for this installment note, similar to the one presented in Exhibit 3. b. Journalize the entries for the issuance of the note and the four annual note payments.

At the beginning of the current year, two bond issues (X and Y) were outstanding. During the year, bond issue X was redeemed and a significant loss on the redemption of bonds was reported as an extraordinary item on the income statement. At the end of the year, bond issue Y was reported as a noncurrent liability. The maturity date on the bonds was early in the following year. Identify the flaws in the reporting practices related to the two bond issues.

Determine the present value of $400,000 to be received in three years, using an interest rate of 10%, compounded annually, as follows: a. By successive divisions. (Round to the nearest dollar.) b. By using the present value table in Exhibit 4.

On the first day of its fiscal year, Simon Company issued \(25,000,000 of 10-year, 10% bonds to finance its operations of producing and selling video equipment. Interest is payable semiannually. The bonds were issued at an effective interest rate of 13%, resulting in Simon Company receiving cash of \)20,868,138. a. Journalize the entries to record the following: 1\. Sale of the bonds. 2\. First semiannual interest payment, including amortization of discount. 3\. Second semiannual interest payment, including amortization of discount. b. Compute the amount of the bond interest expense for the first year.