Mitchell Inc. produces and sells voltage regulators. On July 1, 2006, Mitchell Inc. issued
$14,000,000 of 10-year, 11% bonds priced to yield an effective interest rate of 10%. Interest on the
bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is
the calendar year.Instructions
- Calculate the selling price of the bonds and the amount of bond premium or discount upon
issuance. Use the present value tables in Appendix A. - Record the entry for the amount of the cash proceeds from the sale of the bonds.
- Record the entries for the following:
a. The first semiannual interest payment on December 31, 2006, including the amortiza-
tion of the bond premium, using the straight-line method.
b. The interest payment on June 30, 2007, and the amortization of the bond premium, us-
ing the straight-line method. - Determine the total interest expense for 2006.
- Will the bond proceeds always be greater than the face amount of the bonds when the con-
tract rate is greater than the market rate of interest? Explain.
On July 1, 2006, Brushy Mountain Communications Equipment Inc. issued $10,000,000 of
10-year, 9% bonds when the market rate of interest was 12%. Interest on the bonds is payable
semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.Instructions
- Calculate the selling price of the bond issue and the bond discount or premium on the issue
date. Use the present value tables in Appendix A. - Record the entry for the amount of the cash proceeds from the sale of the bonds.
- Record the entries for the following:
a. The first semiannual interest payment on December 31, 2006, and the amortization of
the bond discount, using the straight-line method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2007, and the amortization of the bond discount, us-
ing the straight-line method. - Determine the total interest expense for 2006.
- Will the bond proceeds always be less than the face amount of the bonds when the contract
rate is less than the market rate of interest? Explain.
Topspin Co. produces and sells synthetic string for tennis rackets. The following transactions
were completed by Topspin Co., whose fiscal year is the calendar year:
2006
July 1 Issued $15,000,000 of five-year, 14% callable bonds dated July 1, 2006, at an effective
rate of 12%. Interest is payable semiannually on December 31 and June 30.
Dec. 31 Paid the semiannual interest on the bonds.
31 Recorded bond premium amortization, which was determined by using the straight-line
method.
2007
June 30 Paid the semiannual interest on the bonds. (Amortization of discount or premium is to
be recorded annually.)
Dec. 31 Paid the semiannual interest on the bonds.
31 Recorded bond premium amortization, which was determined by using the straight-line
method.
2008
July 1 Recorded the redemption of the bonds, which were called at 102. The balance in the
bond premium account is $662,456.70 after the payment of interest and amortization of
premium have been recorded. (Record the redemption only.)Instructions
- Calculate the selling price of the bond issue and the amount of the bond discount or pre-
mium at issuance. Use the present value tables in Appendix A.
482 Chapter 10 Liabilities
Problem 10-3A
Bond premium; entries for
bonds payable transactions
Goal 2- $726,381.91
Problem 10-4A
Bond discount; entries for
bonds payable transactions
Goal 2- $536,026.80
Problem 10-5A
Entries for bonds payable
transactions
Goal 2- a. $939,590.55
GENERAL LEDGER