Page 624 - Accounting Principles (A Business Perspective)

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Problem D Storall Company issued USD 200,000 face value of 16 per cent, 20-year junk bonds on 2010 July 1.
The bonds are dated 2010 July 1, call for semiannual interest payments on July 1 and January 1, and were issued to
yield 12 per cent (6 per cent per period).

a. Compute the amount received for the bonds.
b. Prepare an amortization schedule similar to that in Exhibit 121. Enter data in the schedule for only the first
two interest periods. Use the interest method.
c. Prepare journal entries to record issuance of the bonds, the first six months' interest expense on the bonds,
and the adjustment needed on 2011 May 31, assuming the company's fiscal year ends on that date.
Problem E Kelly Furniture Company issued USD 400,000 face value of 18 per cent, 20-year junk bonds on
2009 October 1. The bonds are dated 2009 October 1, call for semiannual interest payments on April 1 and October

1, and are issued to yield 16 per cent (8 per cent per period).
a. Compute the amount received for the bonds.
b. Prepare an amortization schedule similar to that in Exhibit 121. Enter data in the schedule for only the first
two interest periods. Use the interest method and make all calculations to the nearest dollar.
c. Prepare entries to record the issuance of the bonds, the first six months' interest on the bonds, and the
adjustment needed on 2010 June 30, assuming the company's fiscal year ends on that date.
Problem F Houston Clothing Company issued USD 600,000 of 12 per cent serial bonds on 2009 July 1, at face
value. The bonds are dated 2009 July 1; call for semiannual interest payments on July 1 and January 1; and mature
at the rate of USD 120,000 per year, with the first maturity date falling on 2010 July 1. The company's accounting

period ends on September 30.
Prepare journal entries to record the interest payment of 2010 July 1; the maturing of USD 120,000 of bonds on
2010 July 1; and the adjusting entry needed on 2010 September 30. Also, show how the bonds would be presented
in the company's balance sheet for 2010 September 30.

Alternate problems
Alternate problem A On 2009 December 1, New Jersey Waste Management Company issued USD 300,000
of 10-year, 9 per cent bonds dated 2009 July 1, at 100. Interest on the bonds is payable semiannually on July 1 and
January 1. All of the bonds are registered. The company's accounting period ends on March 31. Quarterly financial
statements are prepared.
The company deposits a sum of money sufficient to pay the semiannual interest on the bonds in a special
checking account in First National Bank and draws interest payment checks on this account. The deposit is made
the day before the checks are drawn.
Prepare journal entries to record the issuance of the bonds; the December 31 adjusting entry; the 2010 January

1, interest payment; and the adjusting entry needed on 2010 March 31, to prepare quarterly financial statements.
Alternate problem B Safe Toy Company is seeking to issue USD 800,000 face value of 10 per cent, 20-year
bonds. The bonds are dated 2009 June 30, call for semiannual interest payments, and mature on 2029 June 30.
a. Compute the price investors should offer if they seek a yield of 8 per cent on these bonds. Also, compute the
first six months' interest assuming the bonds are issued at that price. Use the interest method and calculate all
amounts to the nearest dollar.
b. Repeat part (a) assuming investors seek a yield of 12 per cent.

Accounting Principles: A Business Perspective 625 A Global Text