Acct 551 Week 3 Homework Exercises

E14-3 (Entries for Bond Transactions) Presented below are two independent situations.

1. On January 1, 2012, Divac Company issued $300,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1.

2. On June 1, 2012, Verbitsky Company issued $200,000 of 12%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1.

Instructions

For each of these two independent situations, prepare journal entries to record the following.

1. Divac Company

(a) 1/1/13

Cash…………………………………. 300,000

Bonds Payable…………………. 300,000

(b)  7/1/13

Interest Expense

($300,000 X 9% X 3/12)………… 6,750

Cash…………………………….. 6,750

(c) 12/31/13

Interest Expense…………………… 6,750

Interest Payable………………... 6,750

2. Verbitsky Company

(a) 1/1/13

Cash………………………………… 210,000

Bonds Payable………………… 200,000

Interest Expense

($200,000 X 12% X 5/12)…. 10,000

(b) 7/1/13

Interest Expense………………….. 12,000

Cash

($200,000 X 12% X 5/12)….…. 12,000

(c) 12/31/13 

Interest Expense………………….. 12,000

Interest Payable………………. 12,000

E14-6 (Amortization Schedules—Straight-Line) Spencer Company sells 10% bonds having a maturity value of $3,000,000 for $2,783,724. The bonds are dated January 1, 2012, and mature January 1, 2017. Interest is payable annually on January 1.

E14-7 (Amortization Schedule—Effective-Interest) Assume the same information as E14-6.

Instructions

Set up a schedule of interest expense and discount amortization under the effective-interest method. (Hint: The effective-interest rate must be computed.)

Schedule of Interest Expense and Bond Premium...