Question

Sikes Corporation, whose annual accounting period ends on December 31, issued the following bonds: Date of bonds: January 1, 2018 Maturity amount and date: $300,000 due in 10 years (December 31, 2027) Interest: 10 percent per year payable each December 31 Date issued: January 1, 2018 Required: For each of the three independent cases that follow, provide the amounts to be reported on the January 1, 2018, financial statements immediately after the bonds are issued. TIP: See Exhibit 10.5 for an illustration distinguishing Bonds Payable from their carrying value. (Deductions should be indicated by a minus sign.)

Answer 1

Question in order:

See the first image attached

Answer and Explanation:

Reported amount as of 1, January 2018 after bonds were issued is as below

CASE A CASE B CASE C

Issued at 100 Issued at 95 issued at 103

a. Bonds Payable $130,000 $130,000 $130,000

b. Discount Premium $0 $6,500 $3,900

Discount Premium

130,000×(100 130,000×(100-

-95)⁰/₀ 103)⁰/₀

c. Carrying value $130,000 $123,500 $133,900

payable bonds would be the maturity amount or face value of bonds. The bonds payable would remain same, that is, $130,000 in each case.

In case B, the discount is calculated because the bonds are issued at a price which is less than the face value

in case C, The premium is calculated when the bond are issued at a price that is more than the face value

Carrying value will be calculated by deducting the discount from the bond s payable or by adding the premium in the bonds payable