Practice Problems: Bonds
Complete the demo problem, and self test true/false and multiple choice questions. Check your answers at the end after you finish.
Demonstration problem
Solution
a.
| Price received: | |
| Present value of principal: $100,000 x 0.04603 (see Appendix, Table A.3, 40 period row, 8% column) | $ 4,603 |
| Present value of interest: $7,500 x 11.92461 (see Appendix, Table A.4, 40 period row, 8% column) | 89,435 |
| Total | $94,038 |
b.
| (A) Interest Payment Date | (B) Bond Interest Expense Debit (E X 0.16 x ½) |
(C) Cash Credit ($100,000 x 0.15 x ½) |
(D) Discount on Bonds Payable Credit (B - C) |
(E) Carrying Value of Bonds Payable (previous balance in E + D) |
|---|---|---|---|---|
| Issued price | $94,038 | |||
| 2010/10/31 | $7,523 | $7,500 | $23 | |
| 2011/4/30 | 7,525 | 7,500 | 25 |
c.
| 2010 Apr. 30 | Cash | 94,038 | |
| Discount on bonds payable | 5,962 | ||
| Bonds payable | 100,000 | ||
| Issued $100,000 face value of 20-year, 15% bonds to yield 16%. | |||
| Oct. 31 | Bond interest expense | 7,523 | |
| Discount on bonds payable | 23 | ||
| Cash | 7,500 | ||
| Paid semiannual bond interest expense. | |||
| Dec. 31 | Bond interest expense ($7,525 x (1/3)) | 2,508 | |
| Discount on bonds payable | 8 | ||
| Bond interest payable ($7,500 x (1/3)) | 2,500 | ||
| To record accrual of two months' interest expense. | |||
| 2011 Apr. 30 | Bond interest payable | 2,500 | |
| Bond interest expense ($7,525 x (2/3)) | 5,017 | ||
| Discount on bonds payable | 17 | ||
| Cash | 7,500 | ||
| Paid semiannual bond interest expense. |