On January 1, 2010 Ryan Corpor
On January 1, 2010 Ryan Corporation issued bonds with a facevalue of $5,000,000 and a coupon rate of 5% for $4,670,865. Theeffective rate on the bonds is 6%. The bonds pay interest eachJanuary 1 and July 1 and mature on July 1, 2018.The company uses effective rate amortization method.6. The journal entry (and amount) to recognize the interest expenseon December 31, 2010 would be:a. Debit Interest Expense [$140,126]; Credit Bonds Payable[$15,126]; Credit Cash [$125,000].b. Debit Interest Expense [$140,580]; Credit Bonds Payable[$15,580]; Credit Interest Payable [$125,000].c. Debit Interest Expense [$150,000]; Credit Bonds Payable[$25,000]; Interest Payable [$125,000].d. Debit Interest Expense [$140,126]; Credit Cash [$125,000];Credit Bonds Payable [$15,126].e. None of the above but: .7. On December 31, 2011, the total amount for bonds payablereported by Ryan on its Balance sheet would be:a. Long-term Liability: Bonds Payable [$5,000,000].b. Long-term Liability: Bonds Payable [$4,734,147].c. Long-term Liability: Bonds Payable [$4,717,618].d. Long-term Liability: Bonds Payable [$4,751,171].e. None of the above but: $ .
Answer:
| 6 |
| The journal entry (and amount) to recognize the interest expense onDecember 31, 2010 would be: |
| Debit Interest Expense [$140,580]; Credit Bonds Payable[$15,580]; Credit Interest Payable [$125,000]. |
| Option B is correct |
| 7 |
| Long-term Liability: Bonds Payable[$4,734,147]. |
| Option B is correct |
| Workings: | ||||
| Date | Cash interest | Interest expense | Discount amortized | Carrying value |
| January 1, 2010 | 4670865 | |||
| July 1, 2010 | 125000 | 140126 | 15126 | 4685991 |
| Dec 31,2010 | 125000 | 140580 | 15580 | 4701571 |
| July 1, 2011 | 125000 | 141047 | 16047 | 4717618 |
| Dec 31,2011 | 125000 | 141529 | 16529 | 4734147 |
| Cash interest | 125000 | =5000000*5%*6/12 | ||
| Interest expense: | ||||
| July 1, 2010 | 140126 | =4670865*6%*6/12 | ||
| Dec 31,2010 | 140580 | =4685991*6%*6/12 | ||
| July 1, 2011 | 141047 | =4701571*6%*6/12 | ||
| Dec 31,2011 | 141529 | =4717618*6%*6/12 |
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