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Principles of Accounting, Volume 1: Financial Accounting

Problem Set A

Principles of Accounting, Volume 1: Financial AccountingProblem Set A
PA 1.

LO 13.3On January 1, 2018, King Inc. borrowed $150,000 and signed a 5-year, note payable with a 10% interest rate. Each annual payment is in the amount of $39,569 and payment is due each Dec. 31. What is the journal entry on Jan. 1 to record the cash received and on Dec. 31 to record the annual payment? (You will need to prepare the first row in the amortization table to determine the amounts.)

PA 2.

LO 13.1On July 1, Somerset Inc. issued $200,000 of 10%, 10-year bonds when the market rate was 12%. The bonds paid interest semi-annually. Assuming the bonds sold at 58.55, what was the selling price of the bonds? Explain why the cash received from selling this bond is different from the $200,000 face value of the bond.

PA 3.

LO 13.2Eli Inc. issued $100,000 of 8% annual, 5-year bonds for $103,000. What is the total amount of interest expense over the life of the bonds?

PA 4.

LO 13.2Evie Inc. issued 50 bonds with a $1,000 face value, a five-year life, and a stated annual coupon of 6% for $980 each. What is the total amount of interest expense over the life of the bonds?

PA 5.

LO 13.3Volunteer Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received $540,000. Interest is payable annually. The premium is amortized using the straight-line method. Prepare journal entries for the following transactions.

  1. July 1, 2018: entry to record issuing the bonds
  2. June 30, 2019: entry to record payment of interest to bondholders
  3. June 30, 2019: entry to record amortization of premium
  4. June 30, 2020: entry to record payment of interest to bondholders
  5. June 30, 2020: entry to record amortization of premium
PA 6.

LO 13.3Aggies Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018, and received $540,000. Interest is payable semi-annually. The premium is amortized using the straight-line method. Prepare journal entries for the following transactions.

  1. July 1, 2018: entry to record issuing the bonds
  2. Dec. 31, 2018: entry to record payment of interest to bondholders
  3. Dec. 31, 2018: entry to record amortization of premium
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