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Category > Management Posted 27 Feb 2018 My Price 9.00

Pakesh Corporation

Pakesh Corporation issued bonds twice during 20x7. The transactions were as follows:

 

20x7

 

Jan. 1

Issued $2,000,000 of 9.2 percent, ten-year bonds dated January 1,

 

20x7, with interest payable on June 30 and December 31. The

 

bonds were sold at 98.1, resulting in an effective interest rate of

 

9.5 percent.

Apr. 1

Issued $4,000,000 of 9.8 percent, ten-year bonds dated April 1,

 

20x7, with interest payable on March 31 and September 30. The

 

bonds were sold at 101, resulting in an effective interest rate of

 

9.5 percent.

June 30

Paid semiannual interest on the January 1 issue and amortized the

 

discount, using the effective interest method.

Sept. 30

Paid semiannual interest on the April 1 issue and amortized the

 

premium, using the effective interest method.

Dec. 31

Paid semiannual interest on the January 1 issue and amortized the

 

discount, using the effective interest method.

31

Made an end-of-year adjusting entry to accrue interest on the April

 

1 issue and to amortize half the premium applicable to the second

 

interest period.

 

 

 

Mar. 31

Paid semiannual interest on the April 1 issue and amortized the

 

premium applicable to the second half of the second interest

 

period.

Required

1. Prepare entries in journal form to record the bond transactions. (Round amounts to the nearest dollar.)

2. User Insight: Describe the effect of the above transactions on profitability and liquidity by answering the following questions.

a. What is the total interest expense in 20x7 for each of the bond issues?

b. What is the total cash paid in 20x7 for each of the bond issues?

c. What differences, if any, do y

Answers

Maurice Tutor
(5)
Status NEW Posted 27 Feb 2018 06:02 PM My Price 9.00

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