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Billy’s Hamburgers, Inc., issued 5%, 10-year bonds payable at 90 on December 31, 2010. At December 31, 2012, Billy reported the bonds payable as follows:
Bonds payable…. $ 400,000
Less: Discount… 32,000 $368,000
Billy uses the straight-line amortization method and pays semiannual interest each June 30 and December 31.
1. Answer the following questions about Billy’s bonds payable:
a. What is the maturity value of the bonds?
b. What is the carrying amount of the bonds at December 31, 2012?
c. What is the annual cash interest payment on the bonds?
d. How much interest expense should the company record each year?
2. Record the June 30, 2013, semiannual interest payment and amortization of discount.
3. What will be the carrying amount of the bonds at December 31,2013?
TVX issued $800,000 of 5%, 10-year bonds payable at a price of 9.595 on March 31, 2012. The market interest rate at the date of issuance was 6%, and the date bonds pay interest seminannually.
1. How much cash did the company receive upon issuance of the bonds payable.
2. Prepare an effective-interest amortization table for the bond discount through the first two interest payments. Use exhibit 11A-1 as a guide, and round amounts to the nearest dollar.
3. Journalize the issuance of the bonds on March 30, 2012, and on September 30, 2012, payment of the first semiannual interest amount and amortization of the bond discount. Explanations are not required.