principle of accounting lecture 1 .pdf how and the allowance for doubtful account & depreciation and impairment 1. Accounts receivable are amounts owed by customers on account. Companies generally expect to collect these receivables within 30 to 60 days.

1. Corporation 17
Problem (2):
Grider Industries, Inc. issued $6,000,000 of 8% debentures on May 1, 2010 and received cash
totaling $5,323,577. The bonds pay interest semiannually on May 1 and November 1.
The maturity date on these bonds is November 1, 2018.
The firm uses the effective-interest method of amortizing discounts and
premiums. The bonds were sold to yield an effective-interest rate of 10%.
Instructions
Calculate the total dollar amount of discount or premium amortization during the first year
(5/1/10 through 4/30/11) these bonds were outstanding.
Solution
P= 6,000,000 stated rate =
8%
2
= 4% Market rate =
10%
2
= 5% selling price = 5,323,577
Amortization schedule
Date Cash
Paid
(6,000,000 x 4%)
Interest
Expense
(5%)
Discount
Amortized
Carrying
amount
of Bonds
1/5/2010 $5,323,577
1/11/2010 240,000 266,178 26,178 5,359,755
1/5/2011 240,000 267,487 27,487 5,387,242

2. Corporation 18
Piper Co. (Issuer)
1/5/2010 Cash
Discount on bonds
Bond payable
5,323,577
676,423
6,000,000
1/11/2011, interest expense
Discount on bond
Cash
266178
26,178
240,000
31/12/2010 interest expense 5,359,755 x 5% x
2
6
interest payable
89,329
89,329
1/5/2011 Interest payable
Interest expense 5,359,755 x 5% x
4
6
Discount on bonds
Cash
89,329
178,158
27,487
240,000

3. Corporation 19
Example (3)
Titania Co. sells $600,000 of 12% bonds on June 1, 2010. The bonds pay interest on December
1 and June 1. The due date of the bonds is June 1, 2014. The bonds yield 10%, selling for
$638,780. On October 1, 2011, Titania buys back $300,000 worth of bonds for $315,000
(include accrued interest)
Instructions
Prepare all of the relevant journal entries from the time of sale until the date indicated. Amortize
premium or discount on interest dates and at year-end.
Solution
P = 600,000 stated rate =
12%
2
= 6% Market rate =
10%
2
= 5% selling price = 638,780
Amortization schedule
Date Cash Paid
(600,000 x 6%)
Interest Expense
(5%)
Premium
Amortized
Carrying amount
of Bonds
1/6/2010 638,780
1/12/2010 36,000 31,939 4,061 634,719
1/6/2011 36,000 31,735 4265 630,454
1/10/2011 36,000x
4
6
x ½
= 12000
630,454 x
5
100
x
4
6
x 1/2
= 10,508 1492
(630,454 x 1/2 ) - 1492
313,735

4. Corporation 20
1/6/2010 Cash
Premium on bonds
Bonds Payable
638,780
38,780
600,000
1/12/2010 Interest Expense .......................................
Premium on bonds
Cash
31,939
4,061
36,000
31/12/2010 Interest Expense 634,719 x 5% x
1
6
.
Interest Payable
5,289
5289
1/6/2011 Interest Expense 634,719 x 5% x
5
6
Interest payable
Premium on bonds
Cash
24,446
5289
4265
36,000
1/10/11 Interest Expense.
Premium on bonds
Cash
10,508
1,492
12,000
Bonds Payable
Premium on bonds (313,735 – 300,000)
Gain on Extinguishment of Bonds
Cash (315,000 – 12,000)
300,000
13735
10,736
303,000