Business, 18.02.2020 22:40 cody1097

In each of the following independent cases the company closes its books on December 31.

1.Sanford Co. sells $500,000 of 10% bonds on March 1, 2014. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2017. The bonds yield 12%. Give entries through December 31, 2015.

2. Titania Co. sells $400,000 of 12% bonds on June 1, 2014. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2018. The bonds yield 10%. On October 1, 2015, Titania buys back $120,000 worth of bonds for $126,000 (includes accrued interest). Give entries through December 1, 2016.

For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.)

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Answer from: Leigh305

cash 472,088 debit

discount on BP 27,912 debit

bonds payable 500,000 credit

--to record issuance--

interest expense28325.29

discount on BP3325.29

cash 25000

--to record first interest payment

interest expense 19,016.53

discount on BP2,349.86

interest payable 16,666.67

--to record accrued interest Dec 31th--

Titania:

Cash 532,316.06

Bonds payable 500,000

Premium on BP 32,316.06

--to record issuance--

interest expense26615.8

Premium on BP 3384.2

cash 30000

--first interest payment--

interest expense4,407.77

Premium on BP 592.23

interest payable 5,000

--to record accrued interest Dec 31th--

Explanation:

Sanford Co.

Present value at market rate:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C25,000.000

time7

rate0.06

$25000 \times \frac{1-(1+0.06)^{-7} }{0.06} = PV\\$

PV$139,559.5360

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 500,000.00

time 7.00

rate 0.06

$\frac{500000}{(1 + 0.06)^{7} } = PV$

PV 332,528.56

PV c$139,559.5360

PV m $332,528.5568

Total$472,088.0928

then, we solve for the first interest payment

carrying value x market rate

472,088.09 x 0.06 = 28325.29

we compare with the cash outlay and solve for the amortization

28,325.29 - 25,000 = 3,325.29

At year-end we also solve for the accrued interest

(472,088.09 + 3,325.29) x 0.06 x 4/6 = 19,016.53

accured payable:

500,000 x 5% x 4/6 = 16,666.67

amortization 19,016.53 - 16,666.67 = 2,349.86

Titania

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C30,000.000

time8

rate0.05

$30000 \times \frac{1-(1+0.05)^{-8} }{0.05} = PV\\$

PV$193,896.3828

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 500,000.00

time 8.00

rate 0.05

$\frac{500000}{(1 + 0.05)^{8} } = PV$

PV 338,419.68

PV c$193,896.3828

PV m $338,419.6810

Total$532,316.0638

interest first payment:

532,316.06 x 0.05 = 26615.8

then, compare wit hteh cash outlay of 30,000

30,000 - 26,615.8 = 3384.2

accrued interest:

(532,316.06 - 3,384.2) X 0.05 x 1/6 = 4,407.77

payable 30,000 x 1/6 = 5,000

amoritzation 5000 - 4,407.77 = 592.23

Answer from: Quest

answer; radioactive decay)

Answer from: Quest

Answerincrease; decrease

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In each of the following independent cases the company closes its books on December 31.

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