Chapter 10: Problem Set B

To solve these problems, let's start by going step by step through each requirement for the specified problems. Problem 10-1B: Straight-Line Amortization of Bond Discount 1. Prepare the January 1 Journal Entry for Bond Issuance: o The bonds are issued at a discount (below par value), meaning the cash received is less than the bond's face value. The difference between the bond's face value ($3,400,000) and the issuance price ($3,010,000) represents the discount. o Journal Entry: bash Dr. Cash $3,010,000 Dr. Discount on Bonds Payable $390,000 Cr. Bonds Payable $3,400,000 2. Compute Each Semiannual Period's Cash Payment, Discount Amortization, and Bond Interest Expense: o a. Cash Payment:  Cash payment is calculated as the face value multiplied by the coupon rate, divided by 2 (since interest is paid semiannually).  Cash Payment = $3,400,000 × 10% × 1/2 = $170,000 o b. Straight-Line Discount Amortization:  Total discount amortization over the life of the bond is $390,000. Since there are 20 semiannual periods (10 years × 2), the amortization per period is $390,000 / 20 = $19,500. o c. Bond Interest Expense:  Bond Interest Expense per period = Cash Payment + Discount Amortization  Bond Interest Expense = $170,000 + $19,500 = $189,500 3. Determine the Total Bond Interest Expense Over the Bond's Life: o Total Bond Interest Expense = (Cash Payment × Number of Payments) + Total Discount Amortization o Total Bond Interest Expense = ($170,000 × 20) + $390,000 = $3,790,000 4. Prepare the First Two Years of a Straight-Line Amortization Table: Date Cash Payment Discount Amortization Interest Expense Carrying Value 1/1/2021 $3,010,000 6/30/2021 $170,000 $19,500 $189,500 $3,029,500 12/31/2021 $170,000 $19,500 $189,500 $3,049,000 6/30/2022 $170,000 $19,500 $189,500 $3,068,500 12/31/2022 $170,000 $19,500 $189,500 $3,088,000 5. Prepare the Journal Entries for the First Two Interest Payments: o 6/30/2021: bash Dr. Interest Expense $189,500 Cr. Discount on Bonds Payable $19,500 Cr. Cash $170,000 o 12/31/2021: bash Dr. Interest Expense $189,500 Cr. Discount on Bonds Payable $19,500 Cr. Cash $170,000 Problem 10-2B: Straight-Line Amortization of Bond Premium 1. Prepare the January 1 Journal Entry for Bond Issuance: o The bonds are issued at a premium (above par value), meaning the cash received is more than the bond's face value. o Journal Entry: bash Dr. Cash $4,192,932 Cr. Premium on Bonds Payable $792,932 Cr. Bonds Payable $3,400,000 2. Compute Each Semiannual Period's Cash Payment, Premium Amortization, and Bond Interest Expense: o a. Cash Payment:  Cash Payment = $3,400,000 × 10% × 1/2 = $170,000 o b. Straight-Line Premium Amortization:  Total premium amortization over the life of the bond is $792,932. The amortization per period is $792,932 / 20 = $39,647. o c. Bond Interest Expense:  Bond Interest Expense = Cash Payment - Premium Amortization  Bond Interest Expense = $170,000 - $39,647 = $130,353 3. Determine the Total Bond Interest Expense Over the Bond's Life: o Total Bond Interest Expense = (Cash Payment × Number of Payments) - Total Premium Amortization Total Bond Interest Expense = ($170,000 × 20) - $792,932 = $2,607,068 4. Prepare the First Two Years of a Straight-Line Amortization Table: o Date Cash Payment Premium Amortization Interest Expense Carrying Value 1/1/2021 $4,192,932 6/30/2021 $170,000 $39,647 $130,353 $4,153,285 12/31/2021 $170,000 $39,647 $130,353 $4,113,638 6/30/2022 $170,000 $39,647 $130,353 $4,073,991 5. Prepare the Journal Entries for the First Two Interest Payments: o 6/30/2021: bash Dr. Interest Expense $130,353 Dr. Premium on Bonds Payable $39,647 Cr. Cash o $170,000 12/31/2021: bash Dr. Interest Expense $130,353 Dr. Premium on Bonds Payable $39,647 Cr. Cash $170,000 If you need further details for the remaining problems, we can continue step by step!