On January 1, a company borrowed cash by issuing a $318,000, 6%, installment note to be paid in four equal payments at the end of each year beginning December 31.

On January 1, a company borrowed cash by issuing a $318,000, 6%, installment note to be paid in four

equal payments at the end of each year beginning December 31.

Use (Table 4)

(a) What would be the amount of each installment? (Round "PV Factor" to 5 decimal places and final

answer to the nearest dollar amount. Omit the "$" sign in your response.)

Installment $ 91,772 ± 0.1%

(b) Prepare the journal entry for the second installment payment. (Round "PV Factor" to 5 decimal

places and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

Dec. 31 Interest expense 14,718 ± 0. 1 %

Note payable 77,054 ± 0. 1 %

Cash 91,772 ± 0.1%

Explanation:

(a)

$318,000 ÷ 3.46511 = $91,772

amount of

loan (from Table 4)

n = 4, i = 6% installment

payment

(b)

Interest expense (6% × ($318,000 – [$91,772 – 6% × $318,000])) = 14,718

Snipes Construction paid for earth moving equipment by issuing a $319,000 3year note that specified 1.4% interest to be paid on December 31 of each year. The equipment’s retail cash price was unknown, but it was determined that a reasonable interest rate was 4.5%.

Snipes Construction paid for earth moving equipment by issuing a $319,000 3year note that specified

1.4% interest to be paid on December 31 of each year. The equipment’s retail cash price was unknown,

but it was determined that a reasonable interest rate was 4.5%.

Use (Table 2) and (Table 4)

(a) At what amount should Snipes record the equipment and the note? (Round "PV Factor" to 5 decimal

places and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Price of the note $ 291,817 ± 0.1%

(b) What journal entry should it record for the transaction? (Round "PV Factor" to 5 decimal places and

final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

Dec. 31 Equipment 291,817 ± 0 . 1%

Discount on notes payable 27,183 ± 0. 1 %

Notes payable 319,000 ± 0.1%

 Explanation:

(a)

Interest $4,466¥× 2.74896* = $ 12,277

Principal $319,000× .87630** = 279,540

Present value (price) of the bonds $ 291,817

¥ 1.4% × $319,000

* present value of an ordinary annuity of $1: n = 3, i = 4.5%. (Table 4)

** present value of $1: n = 3, i = 4.5%. (Table 2)

On January 1, a company purchased 2.2%, 20year corporate bonds for $23,282,212 as an investment. The bonds have a face amount of $79.2 million and are priced to yield 11%. Interest is paid semiannually. Prepare journal entries to record effective interest revenue on June 30 and December 31.

On January 1, a company purchased 2.2%, 20year

corporate bonds for $23,282,212 as an investment.

The bonds have a face amount of $79.2 million and are priced to yield 11%. Interest is paid semiannually.

Prepare journal entries to record effective interest revenue on June 30 and December 31. (Enter your

answers in dollars not in millions. Round "PV Factor" to 5 decimal places and final answers to the

nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

June 30 Cash 871,200

Discount on investment in bonds 409,322

Interest revenue 1,280,522

Date General Journal Debit Credit

Dec. 31 Cash 871,200

Discount on investment in bonds 431,834

Interest revenue 1,303,034

Explanation:

Interest will be the effective rate times the outstanding balance:

June 30

Cash (1.1% × $79,200,000) = 871,200

Interest revenue (5.5% × $23,282,212) = 1,280,522

December 31

Cash (1.1% × $79,200,000) = 871,200

Interest revenue (5.5% × [$23,282,212 + 409,322]) = 1,303,034

On January 1, a company issued 3%, 20year bonds with a face amount of $90 million for $58,795,340 to yield 6%. Interest is paid semiannually. What was the straightline interest expense on the December 31 annual income statement?

On January 1, a company issued 3%, 20year

bonds with a face amount of $90 million for $58,795,340 to

yield 6%. Interest is paid semiannually.

What was the straightline

interest expense on the December 31 annual income statement?

 (Enter your

answer in dollars not in millions. Round "PV Factor" to 5 decimal places and final answer to the

nearest dollar amount. Omit the "$" sign in your response.)

Interest expense for the year $ 4,260,234 ± 0.01%

Explanation:

Interest will be a plug figure:

$90,000,000 – 58,795,340 = $31,204,660 discount

$31,204,660 / 40 semiannual periods = $780,116 reduction each period

Date General Journal Debit Credit

June 30 Interest expense (to balance) 2,130,117

Discount on bonds payable (difference) 780,117

Cash (1.50% × $90,000,000) 1,350,000

Date General Journal Debit Credit

Dec. 31 Interest expense (to balance) 2,130,117

Discount on bonds payable (difference) 780,117

Cash (1.50% × $90,000,000) 1,350,000

Interest expense for the year: $2,130,117 + 2,130,117 = $4,260,234