Chapter 10 Liabilities 477Hic-Tec Co. produces and distributes fiber-optic cable for use by telecommunications compa-
nies. Hic-Tec Co. issued $10,000,000 of 20-year, 9% bonds on April 1 of the current year, with in-
terest payable on April 1 and October 1. The fiscal year of the company is the calendar year.
Record the entries for 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.Fajitas Corporation wholesales oil and grease products to equipment manufacturers. On March
1, 2006, Fajitas Corporation issued $10,000,000 of five-year, 11% bonds. The bonds were issued
for $10,386,057 to yield an effective interest rate of 10%. Interest is payable semiannually on
March 1 and September 1. Record the entries for the following:
a. Sale of bonds on March 1, 2006.
b. First interest payment on September 1, 2006, and amortization of bond premium for six
months, using the straight-line method. Round to the nearest dollar.On the first day of its fiscal year, Jones Company issued $6,000,000 of five-year, 8% bonds to
finance its operations of producing and selling home electronics equipment. Interest is payable
semiannually. The bonds were issued at an effective interest rate of 11%. Refer to the tables in
Appendix A for present value factors.
a. Record the entries for the following:- Sale of the bonds.
- First semiannual interest payment. (Amortization of discount is to be recorded annually.)
- Second semiannual interest payment.
- 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.
JTD Corporation issued $800,000 of 20-year, 12% bonds on January 1, 2006, when the market rate
of interest was 10%. Interest is payable annually on December 31. Use the present values tables
in Appendix A.
a. Calculate the price of the bonds on January 1, 2006, the date the bonds were issued.
b. Calculate the bond discount or premium that arises upon issuance.
c. Prepare the journal entry to record the issuance of the bonds on January 1, 2006.Farouk Corp., a wholesaler of office furniture, issued $8,000,000 of 30-year, 9% callable bonds on
March 1, 2006, with interest payable on March 1 and September 1. The fiscal year of the com-
pany is the calendar year. Record the entries for the following selected transactions:2006
Mar. 1 Issued the bonds for cash at their face amount.
Sept. 1 Paid the interest on the bonds.
2010
Sept. 1 Called the bond issue at 102, the rate provided in the bond indenture.
(Omit entry for payment of interest.)Loumos Corp. produces and sells automotive and aircraft safety belts. To finance its operations,
Loumos Corp. issued $15,000,000 of 25-year, 8% callable bonds on June 1, 2006, with interest
payable on June 1 and December 1. The fiscal year of the company is the calendar year. Record
the entries for the following selected transactions:2006
June 1 Issued the bonds for cash at their face amount.
Dec. 1 Paid the interest on the bonds.
2011
Dec. 1 Called the bond issue at 98, the rate provided in the bond indenture.
(Omit entry for payment of interest.)Exercise 10-14
Entries for issuing bonds
Goal 2
Exercise 10-15
Computing bond proceeds,
entries for bond issuing, and
amortizing premium by
straight-line method
Goal 2
Exercise 10-16
Computing bond proceeds,
entries for issuing bonds, and
amortizing discount by
straight-line method
Goal 2
b. $615,677.76
Exercise 10-17
Calculating bond price, calcu-
lating bond discount/premium,
entries for issuing bonds
Goal 2
Exercise 10-18
Entries for issuing and calling
bonds; loss
Goal 2
Exercise 10-19
Entries for issuing and calling
bonds; gain
Goal 2