Accounting Question

An accounting assignment!

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ACCT 3120
Spring 2024
Assignment 3
Class: _____________
Name: ________________________
Due at the beginning of class on Tuesday March 19, 2024. Please keep a copy for
yourself for review purpose. Late submissions will not be accepted.
•
This assignment is worth 10 points.
•
You must provide necessary work to support your answers. Answers without supporting work
are considered incomplete.
•
Round your final answers to the nearest dollar.
•
Grading policy: 75% of your assignment grade will be based on completeness, 20% based on
accuracy, 5% on legibility of the work.
Topics covered in this assignment are:
1. Bond amortization schedule.
2. Early extinguishment of bonds
3. Accounting for bonds payable
4. Installment notes
5. Convertible bonds
6. Bond issue cost
1
Question 1 Bond Amortization Schedule
On January 1, 2021, Tennessee Harvester Corporation issued debenture bonds that pay interest
semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below:
1/1/2021
6/30/2021
12/31/2021
6/30/20222
12/31/2022
6/30/2023
~
~
12/31/2033
6/30/2034
12/31/2034
Cash
Payment
Effective
Interest
Change in
Balance
70,000
70,000
70,000
70,000
70,000
~
~
70,000
70,000
70,000
70,994
71,073
71,159
71,252
71,352
~
~
77,939
78,575
79,261
994
1,073
1,159
1,252
1,352
~
~
7,939
8,575
9,261
Outstanding
Balance
887,424
888,418
889,491
890,651
891,903
893,255
~
~
982,182
990,757
1,000,000
Required:
1. What is the face amount of the bonds?
2. What is the coupon rate?
3. What is the selling price of the bonds?
4. What is the market rate of interest at 1/1/2021?
5. What is the total effective interest expense recorded over the term to maturity?
6. Assume that bonds were called at 101 at 1/1/2034. Prepare the journal entry to account for the early
extinguishment of the bonds.
Account titles
Debit
Credit
2
Question 2 Bond Amortization Schedule
On January 1, 2021, Tennessee Harvester Corporation issued debenture bonds with interest payable
semiannually on July 1 and January 1. Portions of the bond amortization schedule appear below:
1/1/2021
7/1/2021
1/1/2022
7/1/2022
1/1/2023
7/1/2023
1/1/2024
~
1/1/2030
7/1/2030
1/1/2031
Cash
Payment
Effective
Interest
Change in
Balance
60,000
60,000
60,000
60,000
60,000
60,000
~
60,000
60,000
60,000
56,231
56,043
55,845
55,637
55,419
55,190
~
51,362
50,930
50,476
3,769
3,957
4,155
4,363
4,581
4,810
~
8,638
9,070
9,524
Outstanding
Balance
1,124,623
1,120,854
1,116,896
1,112,741
1,108,378
1,103,797
1,098,987
~
1,018,595
1,009,525
1,000,000
Required:
1. What is the effective interest rate?
2. What is the total borrowing cost on the bonds?
3. What is amount of interest expense reported in the income statement for the year ended on
12/31/2023?
4. Assume that half of the bonds were called at 110 at 1/2/2024. Prepare the journal entry to account for
the early extinguishment of the bonds.
Account titles
Debit
Credit
3
Question 3 Bond Issue Cost
The Carlson Company issued $300,000 of 6% bonds on January 1, 2021, at 106. The bonds are due
January 1, 2026, with interest payable each July 1 and January 1. Bond issue costs were $6,000. The
company uses effective-interest method, and its fiscal year-end is 12/31. Assume that the market rate at
1/1/2021 was 4.5%.
1. How much is the amount of liability the company would record from issuing the bond on January
1, 2021?
2. Provide the journal entry on January 1, 2021.
Account titles
Debit
Credit
3. Explain the effect of Bond Issue Cost on the effective interest rate the company will use to
calculate interest expense on the bonds.
4
Question 4 Bonds Payable (financial statement dates different from interest payment date)
The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight
Bay project, LHD issued 5% bonds with a face amount of $500,000 on November 1, 2021. The bonds
sold for $442,215, a price to yield the market rate of 6%. The bonds mature October 31, 2041 (20 years).
Interest is paid semiannually on April 30 and October 31 and is determined using the effective interest
method.
Required:
1. What amount of interest expense related to the bonds will LHD report in its income statement for the
year ending December 31, 2021?
2. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2021?
3. What amount of interest expense related to the bonds will LHD report in its income statement for the
year ending December 31, 2022? (Hint: set up partial amortization schedule)
4. What is the book value of the bonds reported in the balance sheet at December 31, 2022?
5
Question 5 Convertible bonds
On January 1, 2021, Glass Textiles issued $20 million of 9%, 10-year convertible bonds at 105. The
bonds pay interest on June 30 and December 31. The $20 million bonds are convertible into 800,000
shares of Glass’s $1 par common stock. ( That is, each $1,000 bond is convertible into 40 shares of $1
par common stock. On July 1, 2026, investors converted 10% of the bonds it held when Glass’s common
stock had a market price of $30 per share. On that date before the conversion, the bonds had unamortized
premium of $400,000.
Required:
1. Prepare the journal entry by Glass to record the conversion of the bonds using book value
method.
Account titles
Debit
Credit
2. Prepare the journal entry by Glass to record the conversion of the bonds using market value
method.
Account titles
Debit
Credit
6
Question 6 Installment Notes
Magenta Company purchased a machine from Pink Corporation on July 1, 2021. In payment for the
purchase, Magenta issued a one-year installment note to be paid in equal quarterly payments of $30,000
on October 1, 2021, January 1, 2022, March 1, 2022, and July 1, 2022. The payments include interest at
the rate of 12%.
Required:
1. Provide the journal entry on July 1, 2021, and October 1, 2021. Round your answer to the nearest
dollar.
Date
Account titles
Debit
Credit
2. Determine the amount of interest expense that Magenta will report in its income statement for the
year ended December 31. Round your answer to the nearest dollar.
7
ACCT 3120
Spring 2024
Assignment 3
Class: _____________
Name: ________________________
Due at the beginning of class on Tuesday March 19, 2024. Please keep a copy for
yourself for review purpose. Late submissions will not be accepted.
•
This assignment is worth 10 points.
•
You must provide necessary work to support your answers. Answers without supporting work
are considered incomplete.
•
Round your final answers to the nearest dollar.
•
Grading policy: 75% of your assignment grade will be based on completeness, 20% based on
accuracy, 5% on legibility of the work.
Topics covered in this assignment are:
1. Bond amortization schedule.
2. Early extinguishment of bonds
3. Accounting for bonds payable
4. Installment notes
5. Convertible bonds
6. Bond issue cost
1
Question 1 Bond Amortization Schedule
On January 1, 2021, Tennessee Harvester Corporation issued debenture bonds that pay interest
semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below:
1/1/2021
6/30/2021
12/31/2021
6/30/20222
12/31/2022
6/30/2023
~
~
12/31/2033
6/30/2034
12/31/2034
Cash
Payment
Effective
Interest
Change in
Balance
70,000
70,000
70,000
70,000
70,000
~
~
70,000
70,000
70,000
70,994
71,073
71,159
71,252
71,352
~
~
77,939
78,575
79,261
994
1,073
1,159
1,252
1,352
~
~
7,939
8,575
9,261
Outstanding
Balance
887,424
888,418
889,491
890,651
891,903
893,255
~
~
982,182
990,757
1,000,000
Required:
1. What is the face amount of the bonds?
2. What is the coupon rate?
3. What is the selling price of the bonds?
4. What is the market rate of interest at 1/1/2021?
5. What is the total effective interest expense recorded over the term to maturity?
6. Assume that bonds were called at 101 at 1/1/2034. Prepare the journal entry to account for the early
extinguishment of the bonds.
Account titles
Debit
Credit
2
Question 2 Bond Amortization Schedule
On January 1, 2021, Tennessee Harvester Corporation issued debenture bonds with interest payable
semiannually on July 1 and January 1. Portions of the bond amortization schedule appear below:
1/1/2021
7/1/2021
1/1/2022
7/1/2022
1/1/2023
7/1/2023
1/1/2024
~
1/1/2030
7/1/2030
1/1/2031
Cash
Payment
Effective
Interest
Change in
Balance
60,000
60,000
60,000
60,000
60,000
60,000
~
60,000
60,000
60,000
56,231
56,043
55,845
55,637
55,419
55,190
~
51,362
50,930
50,476
3,769
3,957
4,155
4,363
4,581
4,810
~
8,638
9,070
9,524
Outstanding
Balance
1,124,623
1,120,854
1,116,896
1,112,741
1,108,378
1,103,797
1,098,987
~
1,018,595
1,009,525
1,000,000
Required:
1. What is the effective interest rate?
2. What is the total borrowing cost on the bonds?
3. What is amount of interest expense reported in the income statement for the year ended on
12/31/2023?
4. Assume that half of the bonds were called at 110 at 1/2/2024. Prepare the journal entry to account for
the early extinguishment of the bonds.
Account titles
Debit
Credit
3
Question 3 Bond Issue Cost
The Carlson Company issued $300,000 of 6% bonds on January 1, 2021, at 106. The bonds are due
January 1, 2026, with interest payable each July 1 and January 1. Bond issue costs were $6,000. The
company uses effective-interest method, and its fiscal year-end is 12/31. Assume that the market rate at
1/1/2021 was 4.5%.
1. How much is the amount of liability the company would record from issuing the bond on January
1, 2021?
2. Provide the journal entry on January 1, 2021.
Account titles
Debit
Credit
3. Explain the effect of Bond Issue Cost on the effective interest rate the company will use to
calculate interest expense on the bonds.
4
Question 4 Bonds Payable (financial statement dates different from interest payment date)
The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight
Bay project, LHD issued 5% bonds with a face amount of $500,000 on November 1, 2021. The bonds
sold for $442,215, a price to yield the market rate of 6%. The bonds mature October 31, 2041 (20 years).
Interest is paid semiannually on April 30 and October 31 and is determined using the effective interest
method.
Required:
1. What amount of interest expense related to the bonds will LHD report in its income statement for the
year ending December 31, 2021?
2. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2021?
3. What amount of interest expense related to the bonds will LHD report in its income statement for the
year ending December 31, 2022? (Hint: set up partial amortization schedule)
4. What is the book value of the bonds reported in the balance sheet at December 31, 2022?
5
Question 5 Convertible bonds
On January 1, 2021, Glass Textiles issued $20 million of 9%, 10-year convertible bonds at 105. The
bonds pay interest on June 30 and December 31. The $20 million bonds are convertible into 800,000
shares of Glass’s $1 par common stock. ( That is, each $1,000 bond is convertible into 40 shares of $1
par common stock. On July 1, 2026, investors converted 10% of the bonds it held when Glass’s common
stock had a market price of $30 per share. On that date before the conversion, the bonds had unamortized
premium of $400,000.
Required:
1. Prepare the journal entry by Glass to record the conversion of the bonds using book value
method.
Account titles
Debit
Credit
2. Prepare the journal entry by Glass to record the conversion of the bonds using market value
method.
Account titles
Debit
Credit
6
Question 6 Installment Notes
Magenta Company purchased a machine from Pink Corporation on July 1, 2021. In payment for the
purchase, Magenta issued a one-year installment note to be paid in equal quarterly payments of $30,000
on October 1, 2021, January 1, 2022, March 1, 2022, and July 1, 2022. The payments include interest at
the rate of 12%.
Required:
1. Provide the journal entry on July 1, 2021, and October 1, 2021. Round your answer to the nearest
dollar.
Date
Account titles
Debit
Credit
2. Determine the amount of interest expense that Magenta will report in its income statement for the
year ended December 31. Round your answer to the nearest dollar.
7