Brief Exercise 14-9

At December 31, 2014, Hyasaki Corporation has the following account balances:

Bonds payable, due January 1, 2023		$2,102,000
Discount on bonds payable		113,400
Interest payable		104,960

Show how the above accounts should be presented on the December 31, 2014, balance sheet, including the proper classifications.

Hyasaki Corporation

Balance Sheet (Partial)

December 31, 2014

Current Liabilities Bond Interest Payable                                                                  $104,960   Long-term Liabilities Bond Payable, due January 1,2023                                                                   $2,102,000 Less: Discount on Bond Payable                                                                           $113,400 $1,988,600

 

Exercise 14-13

Matt Perry, Inc. had outstanding $6,135,000 of 12% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $9,243,000 of 9%, 15-year bonds (interest payable July 1 and January 1) at 98. A portion of the proceeds was used to call the 12% bonds at 103 on August 1. Unamortized bond discount and issue cost applicable to the 12% bonds were $129,000 and $35,000, respectively.

Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds.
 

 

Matt Perry, Inc.
General Journal
Date	Description	Debit	Credit
July 1	Cash Discount on Bond Bonds Payable	$9,058,140 $184,860	$9,243,000

 

 

 

Matt Perry, Inc.
General Journal
Date	Description	Debit	Credit
August 1	Bonds Payable Loss on Redemption of Bonds Cash Discount on Bonds Unamortized	$6,135,000 $348,050	$6,319,050 $129,000 $35,000

 

Problem 14-2

Venezuela Co. is building a new hockey arena at a cost of $2,719,000. It received a down payment of $514,200 from local businesses to support the project, and now needs to borrow $2,204,800 to complete the project. It therefore decides to issue $2,204,800 of 11%, 10-year bonds. These bonds were issued on January 1, 2013, and pay interest annually on each January 1. The bonds yield 10%. Venezuela paid $51,400 in bond issue costs related to the bond sale.
(a) Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2013.

Present value of the principal = $2,204,800 × 0.38554 = $850,038

Present value of principal formula = $850,039

Present value of the interest = $242,528 × 5.88923 = $1,428,303

Present value of interest formula = $1,428,303

Present selling value of the bonds= $2,278,342

 

Venezuela Co.
General Journal
Date	Description	Debit	Credit
January 1, 2013	Cash Unamortized Bond Issue Costs Bonds Payable Premium Bonds Payable	$2,226,942 $51,400	$2,204,800 $73,542

 

(b) Prepare a bond amortization schedule up to and including January 1, 2017, using the effective interest method.

 

Date	Cash Paid	Interest Expense	Premium Amortization	Carrying Amount of Bonds
1/1/13 1/1/14 1/1/15 1/1/16 1/1/17	$242,528 $242,528 $242,528 $242,528	$227,834 $226,365 $224,748 $222,971	$14,694 $16,163 $17,780 $19,557	$2,278,342 $2,263,648 $2,247,485 $2,229,705 $2,210,148

 

(c) Assume that on July 1, 2016, Venezuela Co. redeems half of the bonds at a cost of $1,169,170 plus accrued interest. Prepare the journal entry to record this redemption.

 

For the bonds being retired, the unamortized bond issue costs are as follows

Unamortized bond issue costs                                                                      $51,400

Years of bond issue                                                                                               10

Unamortized bond issue cost per year                                                            $5,140

Unamortized bond issue costs per six months                                                $2,570

Six-month periods to July 1, 2016                                                                           7

Unamortized bond issue costs to July 1, 2016                                                $17,990

Remaining unamortized bond issue costs as July 1, 2016                               $33,410

Bonds retired as a percentage of bonds issued                                                     50%

Value of remaining unamortized bond issue costs to retired bonds                 $16,705

 

 

The following is the computation for the carrying value of the bonds being retired.

 

Date	Cash Paid		Interest Expense		Premium Amortization		Bond Carrying Value
1/1/13 1/1/14 1/1/15 1/1/16	$242,528 $242,528 $242,528		$227,834 $226,365 $224,748		$14,694 $16,163 $17,780		$2,278,342 $2,263,648 $2,247,485 $2,229,705
Percentage of bond to be retired in the year 50% Carrying value on Jan 1, 2106, of the bonds to be retired = $1,114,853 Interest on bonds to be retired as of July 1, 2016
July 1,16		$60,632		$55,743		$4,889		$1,109,964

 

Reacquisition price                                                                $1,169,170

Carrying value as of July 1, 2016                                           $1,109,964

$59,206

Unamortized bond issue costs                                                        $16,705

Loss on redemption of bonds                                                                                 $75,911

 

Entry for accrued interest

 

Date	Account Title and Explanation	Debit	Credit
July 1,2016	Interest Expense Bonds Payable Premium Cash	$55,743 $4,889	$60,632

 

 

Entry for Reacquisition

 

Date	Account Title and Explanation	Debit	Credit
July 1,2016	Bonds Payable Bonds Payable Premium Loss of Redemption of Bonds Unamortized Bond Issue Costs Cash	$1,102,400 $7,564 $75,911	$16,705 $1,169,170

 
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