BE14.

1 (LO 1) Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest
payable semiannually. At the time of issue, the market rate for such bonds is 10%. Compute the issue
price of the bonds.

Present value of principal: 500,000 x 0.37689 = 188,455

Present value of interest payment: 22,500 x 12.46221 = 280,400

Issue price = 188,445 + 280,400 = 468,845

BE14.2 (LO 1) The Colson Company issued $300,000 of 10% bonds on January 1, 2020. The bonds are
due January 1, 2025, with interest payable each July 1 and January 1. The bonds are issued at face
value. Prepare Colson’s journal entries for (a) the January issuance, (b) the July 1 interest payment,
and (c) the December 31 adjusting entry.

a) Cash 300,000
Bond payable 300,000
b) Interest expense 15,000
Cash 15,000 (300,000x10%x6/12)
c) Interest exp 15,000
Interest payable 15,000

BE14.3 (LO 1) Assume the bonds in BE14.2 were issued at 98. Prepare the journal entries for (a)
January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line
amortization semiannually.

a) Cash 294,000

Discount on payable 6,000

Bond payable 300,000

b) Interest exp 15,600

Discount on payable 600

Cash 15,000

c) Interest exp 15,600

Discount on bonds payable 600
Interest payable 15,000

BE14.4 (LO 1) Assume the bonds in BE14.2 were issued at 103. Prepare the journal entries for (a)
January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line
amortization semiannually.

a) Cash 309,000
Premium on Bonds payable 9,000
Bonds payable 300,000
b) Interest exp 14,100
Premium 900
 Cash 15,000
c) Interest exp 14,100

Premium 900

Interest payable 15,000

BE14.5 (LO 1) Devers Corporation issued $400,000 of 6% bonds on May 1, 2020. The bonds were dated
January 1, 2020, and mature January 1, 2023, with interest payable July 1 and January 1. The bonds
were issued at face value plus accrued interest. Prepare Devers’s journal entries for (a) the May 1
issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

a) Cash 408,000

Bonds payable 400,000

Interest exp 8,000 (400,000x6%x4/12)

b) Interest exp 12,000

Cash 12,000
c) Interest exp 12,000
Interest payable 12,000

BE14.6 (LO 1) On January 1, 2020, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The
bonds were issued for $559,224, and pay interest each July 1 and January 1. JWS uses the effective-
interest method. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1
interest payment, and (c) the December 31 adjusting entry. Assume an eff ective-interest rate of 8%.

a) Cash 559,224
Discount on bonds payable 40,776
Bonds payable 600,000
b) Interest expense 22,369 (Carrying value x effective rate)
Discount on bonds payable 1,369
Cash 21,000
c) Interest exp 22,424 (559,224 + 1,369) x 8% x6/12(Carrying value x effective rate)

Discount on bond payable 1,424

Interest payable 21,000

BE14.7 (LO 1) Assume the bonds in BE14.6 were issued for $644,636 and the eff ective-interest rate is
6%. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest
payment, and (c) the December 31 adjusting entry.

a) Cash 644,636
Premium on bonds payable 44,636
Bond payable 600,000
b) Interest exp 19,339 (644,636x6%x6/12)

Premium on bonds payable 1,661

 Cash 21,000

c) Interest exp 19,289 (644,636 – 1,661)x6%x6/12

Premium on bonds payable 1,711
Interest payable 21,000

BE14.8 (LO 1) Teton Corporation issued $600,000 of 7% bonds on November 1, 2020, for $644,636. The
bonds were dated November 1, 2020, and mature in 10 years, with interest payable each May 1 and
November 1. Teton uses the effective-interest method with an effective rate of 6%. Prepare Teton’s
December 31, 2020, adjusting entry.

Interest exp 6,446 (644,636x6%x2/12)

Premium on bond payable 554

Interest payable 7,000 (600,000x7%x2/12)

BE14.9 (LO 2) On January 1, 2020, Henderson Corporation redeemed $500,000 of bonds at 99. At the
time of redemption, the unamortized premium was $15,000. Prepare the corporation’s journal entry
to record the reacquisition of the bonds.

Bond payable 500,000

Premium on bonds payable 15,000

Cash 495,000

Gain on redemption of bonds 20,000

BE14.10 (LO 3) Coldwell, Inc. issued a $100,000, 4-year, 10% note at face value to Flint Hills Bank on
January 1, 2020, and received $100,000 cash. The note requires annual interest payments each
December 31. Prepare Coldwell’s journal entries to record (a) the issuance of the note and (b) the
December 31 interest payment.

a) Cash 100,000

Notes payable 100,000

b) Interest exp 10,000

Interest payable 10,000

BE14.11 (LO 3) Samson Corporation issued a 4-year, $75,000, zero-interest-bearing note to Brown
Company on January 1, 2020, and received cash of $47,664. The implicit interest rate is 12%. Prepare
Samson’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of
interest.

a) Cash 47,664
Discount on notes payable 27,336
Note payable 75,000
BE14.12 (LO 3) McCormick Corporation issued a 4-year, $40,000, 5% note to Greenbush Company on
January 1, 2020, and received a computer that normally sells for $31,495. The note requires annual
interest payments each December 31. The market rate of interest for a note of similar risk is 12%.
Prepare McCormick’s journal entries for (a) the January 1 issuance and (b) the December 31 interest.

a) Equipment 31,495
Discount on notes payable 8,505
Note payable 40,000
b) Interest exp 3,779.4 (31,495x12%)
Discount on notes payable 1,779

Interest payable 2,000 (40,000x5%)

BE14.13 (LO 3) Shlee Corporation issued a 4-year, $60,000, zero-interest-bearing note to Garcia
Company on January 1, 2020, and received cash of $60,000. In addition, Shlee agreed to sell
merchandise to Garcia at an amount less than regular selling price over the 4-year period. The market
rate of interest for similar notes is 12%. Prepare Shlee Corporation’s January 1 journal entry.

Cash 60,000

Discount on Notes payable 21,869

Notes payable 60,000

Unearned sales revenue 21,869 (60,000 – (60,000/(1+12%)^4))

BE14.14 (LO 4) Shonen Knife Corporation has elected to use the fair value option for one of its notes
payable. The note was issued at an eff ective rate of 11% and has a carrying value of $16,000. At year-
end, Shonen Knife’s borrowing rate (credit risk) has declined; the fair value of the note payable is now
$17,500. (a) Determine the unrealized holding gain or loss on the note. (b) Prepare the entry to record
any unrealized holding gain or loss.

a) Fair value – Book value = 17,500 – 16,000 = 1,500 (unrealized loss)

b) Unrealized holding loss – equity 1,500
Notes payable 1,500

BE14.15 (LO 4) At December 31, 2020, Hyasaki Corporation has the following account balances:

Bonds payable, due January 1, 2029 $2,000,000

Discount on bonds payable 88,000

Interest payable 80,000

Show how the above accounts should be presented on the December 31, 2020, balance sheet,
including the proper classifications.

Current liabilities:

Interest payable 80,000

Non-current liabilities:
 Bonds payable 2,000,000

Less: (Discount on notes payable) (88,000)

E14.1 (LO 1) (Classifi cation of Liabilities) Presented below are various account balances of K.D. Lang
Inc.

a. Unamortized premium on bonds payable, of which $3,000 will be amortized during the next year.

b. Bank loans payable of a winery, due March 10, 2024. (The product requires aging for 5 years before
sale.)

c. Serial bonds payable, $1,000,000, of which $200,000 are due each July 31.

d. Amounts withheld from employees’ wages for income taxes.

e. Notes payable due January 15, 2023.

f. Credit balances in customers’ accounts arising from returns and allowances after collection in full of
account. g. Bonds payable of $2,000,000 maturing June 30, 2021.

h. Overdraft of $1,000 in a bank account. (No other balances are carried at this bank.)

i. Deposits made by customers who have ordered goods.

Instructions:

Indicate whether each of the items above should be classifi ed on December 31, 2020, as a current
liability, a long-term liability, or under some other classifi cation. Consider each one independently
from all others; that is, do not assume that all of them relate to one particular business. If the classifi
cation of some of the items is doubtful, explain why in each case.

E14.10 (LO 1) (Entries for Bond Transactions) On January 1, 2020, Aumont Company sold 12% bonds
having a maturity value of $500,000 for $537,907.37, which provides the bondholders with a 10%
yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable
December 31 of each year. Aumont Company allocates interest and unamortized discount or premium
on the eff ective-interest basis.

Instructions (Round answers to the nearest cent.)

a. Prepare the journal entry at the date of the bond issuance.

Cash 537,907.37

Premium on bonds payable 37,907.37

Bond payable 500,000

b. Prepare a schedule of interest expense and bond amortization for 2020–2022.

Date Cash paid Interest exp Premium Carrying amount

amortized of bonds
1/1/20 537,907.37
31/12/20 60,000 53,790.74 6,209.26 531,689.11
 31/12/21 60,000 53,169.81 6,830.19 524,867.92
31/12/22 60,000 52,486.79 7,513.21 517,354.71

c. Prepare the journal entry to record the interest payment and the amortization for 2020.
Interest exp 53,790.74
Premium on Bonds payable 6,209.26
Cash 60,000
d. Prepare the journal entry to record the interest payment and the amortization for 2022.
Interest exp 52,486.79
Premium on Bonds payable 7,513.21
Cash 60,000

E14.16 (LO 3) (Entries for Zero-Interest-Bearing Notes) On January 1, 2020, Carter Company makes the
two following acquisitions.

1. Purchases land having a fair value of $200,000 by issuing a 5-year, zero-interest-bearing promissory
note in the face amount of $337,012.

2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $250,000
(interest payable annually). The company has to pay 11% interest for funds from its bank.

Instructions (Round answers to the nearest cent.)

a. Record the two journal entries that should be recorded by Carter Company for the two purchases
on January 1, 2020.

1. Land 200,000

Discount on note payable 137,012

Notes payable 337,012

2. Equipment 185,674.3

Discount on notes payable 64,325.7

Notes payable 250,000

PV of notes payable = 250,000/(1+11%)^8 + 15000x(1+11%)^8/11%x(1+11%)^8 = 108,482.5 + 77,191.8 =

185,674.3

b. Record the interest at the end of the first year on both notes using the eff ective-interest method.

1. Interest exp 22,000

Discount on notes payable 22,000

2. Interest exp 20,424.17 (185,674.3x11%)

Discount on notes payable 5,424.17

Cash 15,000 (250,000x6%)