Yale Corporation issued to Zap Corporation $70,000, 10% (cash interest payable semiannually on June 30 and December 31) 10-year bonds dated and sold on January 1, 2020. Assume that the company uses the effective interest method for amortization. If the bonds were sold at 97, yielding 10.5%. What is true for journal entries to be made at June 30, 2020, for interest payment if Effective interest method is used?

Answer:

Journal Entry

June 30, 2020

Dr. Interest expense __$3,564.75

Cr. Discount on bonds_$64.75

Cr. Cash ___________$3,500

[To record interest]  

Explanation:

First, we need to calculate the issuance price of the bond

Issuance price of the bond = Face value x Seling rate = $70,000 x 97/100 = $67,900

Now we need to calculate the discount value as follow

Discount = Face value - Isuance vaue = $70,000 - $67,900 = $2,100

Now, need to calculate the discount amortization as follow

Discount amortization = ( Carrying value of bond x Effective interest rate x 6/12 ) - ( Face value x Coupon rate x 6/12 ) = ( $67,900 x 10.5%x 6/12 ) - ( $70,000 x 10% x 6/12 = $3,564.75 - $3,500 = $64.75

Now calculate the interest payment

Interst payment = Face value x Coupon rate x 6/12 = $70,000 x 10% x 6/12 = $3,500

The bonds would expire on the date of maturity, and the issuing company will pay the debt holder the face value of the bond.

The issue price is termed as the price at which the issuer of the bond sells the bonds for the first time.

The Journal entry has been attached below.  

The calculation of the issuance price of the bond:

Issuance price of the bond = [tex]\text{Face value} \times \text{Seling rate} = \$70,000 \times \frac{97}{100}[/tex] = $67,900

Calculation of the discount value:

Discount = Face value - Isuance vaue = $70,000 - $67,900 = $2,100

Calculation of the discount amortization:

Discount amortization = [tex]( \text{Carrying value of bond} \times \text{Effective interest rate} \itimes \frac{6}{12} ) - ( \text{Face value} \times \text{Coupon rate} \times \frac{6}{12})[/tex]

= [tex]( \$67,900 \times 10.5\%\times \frac{6}{12}) - ( \$70,000 \times 10\% \times \frac{6}{12})[/tex]

= $3,564.75 - $3,500 = $64.75

Calculation of the interest payment:

Interst payment =[tex]\text{ Face value} \times \text{Coupon rate} \times \frac{6}{12} = \$70,000 \times 10\% \times \frac{6}{12}[/tex]= $3,500

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https://brainly.com/question/9256832

Amy and Brian were investigating the acquisition of a tax accounting business, Bottom Line Inc. (BLI). As part of their discussions with the sole shareholder of the corporation, Ernesto Young, they examined the company's tax accounting balance sheet. The relevant information is summarized as follows:


FMV Adjusted Basis Appreciation

  Cash $32,250 $32,250
  Receivables 18,600 18,600
  Building 136,000 68,000 68,000
  Land 269,250 89,750 179,500
Total $456,100 $208,600 $247,500
Payables $27,200 $27,200
  Mortgage* 135,750 135,750
Total $162,950 $162,950


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a. What amount of gain or loss does BLI recognize if the transaction is structured as a direct asset sale to Amy and Brian? What amount of corporate level tax does BLI pay as a result of the transaction, assuming a tax rate of 34 percent?
b. What amount of gain or loss does Ernesto recognize if the transaction is structured as a direct asset sale to Amy and Brian, and BLI distributes the after-tax proceeds (computed in question a) to Ernesto in liquidation of his stock?
c. What is the nature of tax benefits to Amy and Brian as a result of structuring the acquisition as a direct asset purchase?
d. What is the tax basis in the assets received by Amy and Brian?

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3,168

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Taxable income $1,632 Total
$17,593

Total
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Net income
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Question

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2007 40,000 30 %

2008 17,000 35 %

2009 48,000 50 %

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2011 90,000 40 %

2012 30,000 40 %

2013 105,000 40 %

2014 (60,000) 45 %

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?

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30-Nov 31-Dec
debit    credit debit credit
supplies $2,000 $3,500
prepaid Insurance $8,000 $6,000
salaries payable $11,000 $16,000
unearned revenue $3,000 $1,500

The following information also is known:
a. Purchases of supplies during December total $3,500.
b. Supplies on hand at the end of December equal $3,000.
c. No insurance payments are made in December.
d. Insurance cost is $1,500 per month.
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Show the adjusting entries that were made for supplies, prepaid insurance, salaries payable, and unearned revenue on December 31.

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What is Joseâs cost basis for the delivery van?