Accounting Principles 11 Edition

Chapter 15
Do It Review 15-2

Account Titles and Explanations Debit Credit

Cash 520,000
Bonds Payable 500,000
Premium on Bonds Payable 20,000
Eubank Corporation Balance Sheet

Long Term Liabilities

Bonds Payable 500,000
Add: Premium on Bonds Payable 20,000
520,000

Exercise 15-3
On January 1, Klosterman Company issued $500,000, 10%, 10-year bonds at face value. Interest is payable semiannually
on July 1 and January 1.

Date Account Titles and Explanations Debit Credit

Jan. 1 Cash 500,000
Bonds Payable 500,000

Date Account Titles and Explanations Debit Credit

July 1 Interest Expense 25,000
Cash 25,000

Exercise 15-4

Date Account Titles and Explanation Debit Credit

July 1 Interest Expense 16,000
Cash 16,000

Prepare the journal entry to record the accrual of interest on December 31.

Date Account Titles and Explanation Debit Credit

Dec. 31 Interest Expense 16,000
Interest Payable 16,000

Exercise 15-5
Laudie Company issued $400,000 of 9%, 10-year bonds on January 1, 2014, at face value. Interest is payable
semiannually on July 1, and January 1.

Prepare the journal entry to record the issuance of the bonds.

Date Account Titles and Explanation Debit Credit

Accounting Principles 11 Edition
Chapter 15
Jan. 1. 2014 Cash 400,000
Bonds Payable 400,000

Prepare the journal entry to record the payment of interest on July 1, assuming no previous accrual of interest.

Date Account Titles and Explanation Debit Credit

July 1, 2014 Interest Expense 18,000
Cash 18,000

Prepare the journal entry to record the accrual of interest on December 31.

Date Account Titles and Explanation Debit Credit

Dec 31, 2014 Interest Expense 18,000
Interest Payable 18,000

Prepare the journal entry to record the redemption of bonds at maturity, assuming interest for the last interest period
has been paid and recorded.

Date Account Titles and Explanation Debit Credit

Jan 31, 2014 Bonds Payable 400,000
Cash 400,000

Exercise 15-7

Whitmore Company issued $500,000 or 5-year, 8% bonds at 97 on January 1, 2014. The bonds pay interest twice a year.
Prepare the journal entry to record the issuance of bonds.

Account Titles and Explanations Debit Credit

Cash 485,000
Discount on Bonds Payable 15,000
Bonds Payable 500,000

Compute the total cost of borrowing these bonds

Total Cost of Borrowing $215,000

Prepare the journal entry to record the issuance of bonds, assuming the bonds were issued at 105.
Total Cost of Borrowing $175,000

Exercise 15-8

The following section is taken from Ohlman Corp.’s balance sheet at December 31, 2013:
Current liabilities
Interest payable $56,000
Long-term liabilities
Bonds Payable, 7% due January 1, 2018 1,600,000
Accounting Principles 11 Edition
Chapter 15
Journalize the payment of the bond interest on January 1, 2014

Date Account Titles and Explanations Debit Credit

Jan 1 Interest Payable 56,000
Cash 56,000

Assume that on January 1, 2014, after paying interest, Ohlman calls bonds having a face value of $600,000. The call price
is 103. Record the redemption of the bonds.

Date Account Titles and Explanation Debit Credit

Jan. 1 Bonds Payable 600,000
Loss on Bond Redemption 18,000
Cash 618,000

Prepare the entry to record the payment of interest on July 1, 2014, assuming no previous accrual of interest on the
remaining bonds.

Date Account Titles and Explanations Debit Credit

July 1 Interest Expense 35,000
Cash 35,000

Exercise 15-13

The adjusted trial balance for Karr Farm Corporation at then end of the current year contained the following accounts:

Interest Payable 9,000

Lease Liability 89,500
Bonds Payable, due 2019 180,000
Premium on Bonds Payable 32,000

Prepare the long-term liabilities section of the balance sheet.

Karr Farm Corporation

Balance Sheet
Long-term Liabilities
Bonds Payable 180,000
Add Premium on Bonds Payable 32,000 212,000
Lease Liability 89,500
Total Long-term liabilities 301,500

Exercise 15-17
LRNA Company issued $300,000, 11%, 10-year bonds on January 1, 2014, for $318,694. This price resulted in an
effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. LRNA uses the
effective-interest method to amortize bond premium or discount.

Prepare the journal entry to record the issuance of the bonds.

Accounting Principles 11 Edition
Chapter 15
Date Account Titles and Explanation Debit Credit
Jan. 1 Cash 318,694
Premium on Bonds Payable 18,694
Bonds Payable 300,000

Prepare the journal entry to record the payment of interest and the premium amortization on July 1, 2014, assuming
that interest was not accrued on June 30.

Date Account Titles and Explanation Debit Credit

July 1 Interest Expense 15,935
Premium on Bonds Payable 565
Cash 16,500

Prepare the journal entry to record the accrual of interest and the premium amortization on December 31, 2014.

Date Account Titles and Explanation Debit Credit

Dec. 31 Interest Expense 15,906
Premium on Bonds Payable 594
Interest Payable 16,500

Exercise 15-18
Adcock Company issued $600,000, 9%, 20-year bonds on January 1, 2014, at 103. Interest is payable semiannually on
July 1 and January 1. Adcock uses straight-line amortization for bond premium or discount.
Prepare the journal entry to record the issuance of the bonds.

Date Account Titles and Explanations Debit Credit

Jan. 1, 2014 Cash 618,000
Premuim on Bonds Payable 18,000
Bonds Payable 600,000

Prepare the journal entry to record the payment of interest and the premium amortization on July 1, 2014, assuming
that interest was not accrued on June 30.

Date Account Titles and Explanation Debt Credit

July 1, 2014 Interest Expense 26,550
Premium on Bonds Payable 450
Cash 27,000

Prepare the journal entry to record the accrual of interest and the premium amortization on December 31, 2014.

Date Account Titles and Explanation Debt Credit

July 1, 2014 Interest Expense 26,550
Premium on Bonds Payable 450
Cash 27,000
Prepare the journal entry to record the redemption of the bonds at maturity, assuming interest for the last interest
period has been paid and recorded.
Accounting Principles 11 Edition
Chapter 15
Date Account Titles and Explanation Debit Credit
Jan. 1, 2014 Bonds Payable 600,000
Cash 600,000

Exercise 15-19
Gridley Company issued $800,000, 11%, 10-year bonds on December 31, 2011 for $730,000. Interest is payable
semiannually on June 30 and December 31. Gridley Company uses the straight-line method to amortize bond premium
or discount.

Prepare the journal entry to record the issuance of the bonds.

Date Account Titles and Explanation Debt Credit

Dec. 31, 2013 Cash 730,000

Discount on Bonds Payable 70,000

Bonds Payable 800,000

Prepare the journal entry to record the payment of interest and the discount amortization on June 30, 2014.

Date Account Titles and Explanation Debt Credit

Dec. 21, 2014 Interest Expense 47,500
Discount on Bonds Payable 3,500
Cash 44,000

Prepare the journal entry to record the redemption of bonds at maturity, assuming interest for the last interest period
has been paid and recorded.

Date Account Titles and Explanation Debt Credit

Dec. 31, 2014 Bonds Payable 800,000
Cash 800,000

Problem 15-3A
Talkington Electronics issues a $400,000, 8%, 10-year mortgage note on December 31, 2013. The proceeds from the note
are to be used in financing a new research laboratory. The terms of the note provide for semiannual installment
payments, exclusive of real estate taxes and insurance, of $29,433. Payments are due June 30 and December 31.

Prepare an installment payments schedule for the first two years.

Semiannual Interest Period Cash Payment Interest Expense Reduction of Principal Principal Balance
Issue Date 400,000
1 29,433 16,000 13,433 386,567
2 29,433 15,563 13,970 372,597
3 29,433 14,904 14,529 358,068
4 29,433 14,323 15,110 342,958
Prepare the entries for (1) the loan and (2) the first two installment payments,

Date Account Titles and Explanations Debit Credit

Dec. 31, 2013 Cash 400,000
Accounting Principles 11 Edition
Chapter 15
Mortgage Payable 400,000
June 30, 2014 Interest Expense 16,000
Mortgage Payable 13,433
Cash 29,433
Dec. 31, 2014 Interest Expense 15,463
Mortgage Payable 13,970
Cash 29,433

Show how the total mortgage liability should be reported on the balance sheet at December 31, 2014

Talkington Electronics
Balance Sheet
December 31, 2014
Current Liabilities
Mortgage Payable 29,639
Long-term Liabilities 342,958

Problem 15-8A
Saberhagen Company sold $3,500,000, 8%, 10-year bonds on July 1, 2014. The bonds were dated July 1, 2014, and pay
interest July 1 and January 1. Saberhagen Company uses the straight-line method to amortize bond premium or discount.
Assume no interest is accrued on June 30.

Prepare the necessary journal entries to record the issuance of the bonds and bond interest expense for 2014, assuming
that the bonds are sold at 104.

Date Account Titles and Explanation Debit Credit

July 1, 2014 Cash 3,640,000
Premium on Bonds Payable 140,000
Bonds Payable 3,500,000
Dec. 31, 2014 Interest Expense 133,000
Premium in Bonds Payable 7,000
Interest Payable 140,000

Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2014,
assuming that the bonds are sold at 98.

Date Account Titles and Explanations Debit Credit

July 1, 2014 Cash 3,430,000
Discount on Bonds Payable 70,000
Bonds Payable 3,500,000
Dec. 31, 2014 Interest Expense 143,500
Discount on Bonds Payable 3,500
Interest Payable 140,000

Show Balance sheet presentation for the bonds at December 31, 2014

Saberhagen Company
Accounting Principles 11 Edition
Chapter 15
Balance Sheet
December 31, 2014
Premium
Long-term Liabilities
Bonds Payable 3,500,000
Add: Premium on Bonds Payable 133,000 3,633,000
Discount
Bonds Payable 3,500,000
Less: Discount on Bonds Payable 66,500 3,433,500