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    Test Advance Financial Accounting

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    Saadullah Channa
    Aumont Company issued $500,000 of 12% bonds on January 1, 2020 at a price of $537,907.37 which provided a 10% yield to the bondholders. Interest is paid annually on December 31. The journal entry on January 1, 2020 would debit Cash for $537,907.37 and credit Bonds Payable for $500,000 and Bond Premium for $37,907.37. Interest expense and bond premium amortization would be recorded annually over the life of the bonds through December 31, 2022.

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    Test Advance Financial Accounting

    Uploaded by

    Saadullah Channa
    73 views2 pages
    Aumont Company issued $500,000 of 12% bonds on January 1, 2020 at a price of $537,907.37 which provided a 10% yield to the bondholders. Interest is paid annually on December 31. The journal entry on January 1, 2020 would debit Cash for $537,907.37 and credit Bonds Payable for $500,000 and Bond Premium for $37,907.37. Interest expense and bond premium amortization would be recorded annually over the life of the bonds through December 31, 2022.

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    Aumont Company issued $500,000 of 12% bonds on January 1, 2020 at a price of $537,907.37 which provided a 10% yield to the bondholders. Interest is paid annually on December 31. The journal entry on January 1, 2020 would debit Cash for $537,907.37 and credit Bonds Payable for $500,000 and Bond Premium for $37,907.37. Interest expense and bond premium amortization would be recorded annually over the life of the bonds through December 31, 2022.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    73 views2 pages

    Test Advance Financial Accounting

    Uploaded by

    Saadullah Channa
    Aumont Company issued $500,000 of 12% bonds on January 1, 2020 at a price of $537,907.37 which provided a 10% yield to the bondholders. Interest is paid annually on December 31. The journal entry on January 1, 2020 would debit Cash for $537,907.37 and credit Bonds Payable for $500,000 and Bond Premium for $37,907.37. Interest expense and bond premium amortization would be recorded annually over the life of the bonds through December 31, 2022.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 2

    Test Advance Financial Accounting

    Qno.1 On January 1, 2020, Aumont Company sold 12% bonds having a maturity value of
    $500,000 for $537,907.37, which provides the bondholders with a 10% yield. The bonds are
    dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each
    year. Aumont Company allocates interest and unamortized discount or premium
    on the eff ective-interest basis.

    Instructions
    (Round answers to the nearest cent.)
    a. Prepare the journal entry at the date of the bond issuance.
    b. Prepare a schedule of interest expense and bond amortization for 2020–2022.
    c. Prepare the journal entry to record the interest payment and the amortization for 2020.
    d. Prepare the journal entry to record the interest payment and the amortization for 2022.

    Qno.2 Presented below are two independent situations

    a. George Gershwin Co. sold $2,000,000 of 10%, 10-year bonds at 104 on


    January 1, 2020. The bonds were dated January 1, 2020, and pay interest on July
    1 and January 1. If Gershwin uses the straight line method to amortize bond
    premium or discount, determine the amount of interest expense to be reported
    on July 1, 2020, and December 31, 2020.

    b. Ron Kenoly Inc. issued $600,000 of 9%, 10-year bonds on June 30, 2020, for
    $562,500. This price provided a yield of 10% on the bonds. Interest is payable
    semiannually on December 31 and June 30. If Kenoly uses the eff ective-interest
    method, determine the amount of interest expense to record if fi nancial
    statements are issued on October 31, 2020.
    A conceptual framework for financial reporting is:

    A set of items which make up an entity's financial statements


    A set of regulations which govern financial reporting
    A set of principles which underpin financial reporting
    A set of financial reporting standards
     
    Which of the following is not a contributory factor towards faithful representation?
    Completeness
     
    Freedom from
    error
    Neutrality
    Consistency
    The following is selected information for Alatorre Company.
    1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2018. The
    patent is being amortized over its remaining legal life of 10 years, expiring on January 1,
    2028. During 2020, Alatorre determined that the economic benefi ts of the patent would
    not last longer than 6 years from the date of acquisition. What amount should be
    reported in the balance sheet for the patent net of accumulated amortization, at
    December 31, 2020?

    2. Alatorre bought a franchise from Alexander Co. on January 1, 2019, for $400,000.
    The carrying amount of the franchise on Alexander’s books on January 1, 2019, was
    $400,000. The franchise agreement had an estimated useful life of 30 years. Because
    Alatorre must enter a competitive bidding at the end of 2021, it is unlikely that the
    franchise will be retained beyond 2028. What amount should be amortized for the year
    ended December 31, 2020?

    3. On January 1, 2020, Alatorre incurred organization costs of $275,000. What amount


    of organization expense should be reported in 2020?

    4. Alatorre purchased the license for distribution of a popular consumer product on


    January 1, 2020, for $150,000. It is expected that this product will generate cash fl ows
    for an indefi nite period of time. The license has an initial term of 5 years but by paying a
    nominal fee, Alatorre can renew the license indefi nitely for successive 5-year terms.
    What amount should be amortized for the year ended December 31, 2020?

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