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 14
Example
On January 1, 2013, Masterwear industries called its $700,000, 12% bonds when their carrying amount was
$676,288. The indenture specified a call price of $685,000.
The bonds were issued previously at a price yield 14%
Bonds Payable
Loss on early extinguishment ‫متمم‬
Discount on bond payable (700,000 – 676,288)
Cash
700,000
8712
23,712
685,000

2. Corporation 15
Problem (1):
On January 1, 2011, Piper Co. issued ten-year bonds with a face value of $1,000,000 and a
stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were
sold to yield 12%.
Instructions
(a) Calculate the issue price of the bonds.
(b)Prepare the amortization table for 2011, assuming that amortization is recorded on
interest payment dates
(c) Prepare journal entry for piper co. for year 2011
Solution
P= 1,000,000 stated rate =
10%
2
= 5% Market rate =
12%
2
= 6% N= 10 x 2 = 20
Maturity value of bonds payable 1,000,000
Present value of principle
Principle x P.V. $1 (n=20 i=6%)
1,000,000 X 0.3118
Present value of interest payable
Interest x P.V.O.A (n=20 i=6%)
(1,000,000 x 5%) = 50,000 X 11.4699
311,800
573,495
proceeds from sale of bonds 885,295
= Discount on bonds payable 114705
Date Cash
Paid
Interest
Expense (6%)
Discount
Amortized
Carrying amount of
Bonds
1/1/2011 885,295
30/6/2011 50000 53,117.7 3,117.7 888,412
31/12/2011 50000 53,304.7 3,304.7 891716
Piper Co. (Issuer)
(Jan. 1) Cash
Discount on bonds
Bond payable
885,295
114705
1,000,000
July 1, interest expense
Discount on bond
Cash
53,117.7
3,117.7
50,000
Dec 1, interest expense
Discount on bond
Cash
53,304.7
3,304.7
50,000

3. Corporation 16
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
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
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 (267,487 – 89,329)
Discount on bonds
Cash
89,329
178,158
27,487
240,000