Posted: April 28th, 2016
a) Prepare the journal entries to record the following transactions:
1) The issuance of the bonds on June 30, 2012.
2) The payment of interest and the amortization of the premium on December 31, 2012.
3) The payment of interest and the amortization of the premium on June 30, 2013.
4) The payment of interest and the amortization of the premium on December 31, 2013.
b) Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2013, balance sheet.
c) Provide the answers to the following questions.
1) What amount of interest expense is reported for 2013?
2) Will the bond interest expense reported in 2013 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?
3) Determine the total cost of borrowing over the life of the bond.
4) Will the total bond interest expense for the life of the bond be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used?
4). Entries for Zero-Interest Bearing Notes – On January 1, 2013, McLean Company makes the two following acquisitions.
a) Purchases land having a fair market value of $300,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $505,518.
b) Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $400,000 (interest payable annually).
The company has to pay 11% interest for funds from its bank.
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