# 1944 and Bonds Payable

Topics: 1944, 1941, 1971 Pages: 2 (286 words) Published: March 17, 2013
Problem 3
On March 1, 2002, Pyne Furniture Co. issued \$700,000 of 10 percent bonds to yield 8 percent. Interest is payable semiannually on February 28 and August 31. The bonds mature in ten years. Pyne Furniture Co. is a calendar-year corporation.

(1)   Determine the issue price of the bonds. Show your computations. (2)   Prepare an amortization table through the first two interest periods using the effective-interest method. (3)   Prepare the journal entries to record bond-related transactions as of the following dates: (a)   March 1, 2002

(b)   August 31, 2002
(c)   December 31, 2002
(d)   February 28, 2003

Solution 3
LO4
(1)   Calculation of bond sale price: i = 4% n = 20
Present value of the face amount (\$700,000 x .4564)    \$319,480    Present value of the interest (\$35,000 x 13.5903) 475,661              \$795,141

(2)   Amortization table:
InterestInterest    Amortization Carrying    Date    Payment   Expense of Premium    Value    3/1/2002               \$795,141
8/31/2002 \$35,000   \$31,806   * \$3,194    791,947    2/28/2003 35,000   31,678   ** 3,322    788,625

Computations:
*   \$795,141 x 4% = \$31,806
** \$791,947 x 4% = \$31,678

(3)   Journal entries:
(a)3/1/2002 Cash       795,141
Bonds Payable       700,000

(b)8/31/2002 Interest Expense    31,806
Cash          35,000

(c)12/31/2002Interest Expense (\$31,678 x 4/6) 21,119
Premium on Bonds Payable (\$3,322 x 4/6)2,215
Interest Payable (\$35,000 x 4/6) 23,334

(d)Assuming no reversing entries:
2/28/2003Interest Payable      23,334
Interest Expense      10,559
Cash          35,000...