Problem 1

On July 1, 2017, Granville Ltd. borrowed $15,000 by signing a two-year,

4% note payable. The note is payable in two annual blended principal and
interest instalments of $7,953 on June 30. Adjusting Journal entries are
recorded annually at year end on December 31.

Instructions:
a. Prepare an instalment payment schedule for the term of the note.
Round all amounts to the nearest dollar.
b. Record (1) the issue of the note on July 1, 2017; (2) the accrual of
interest on December 31, 2017; (3) the first payment on June 30,
2018.
c. What amounts would be reported as current and non-current in the
liabilities section of Granvilles’s statement of financial position on
Decemeber 31, 2018?
 (B) (C) (D)
Annual (A) Interest Reduction Principal
Interest Cash Expense of Principal Balance
Period Payment (D) × 4% (A) – (B) (D) – (C)
July 1, 2017 $15,000
June 30, 2018 $7,953 $600 $7,353 7,647
June 30, 2019 7,953 306 7,647 0
(b) 2017
(1) July 1 Cash ........................................................... 15,000
Notes Payable .................................... 15,000
(2) Dec. 31 Interest Expense ($600 × 6/12) .................. 300
Interest Payable ................................. 300

(3) 2018
June 30 Interest Expense......................................... 300
Interest Payable.......................................... 300
Notes Payable ............................................ 7,353
Cash ................................................... 7,953
(c) On December 31, 2018 another accrual for interest expense would be made
as follows:

Dec. 31 Interest Expense ($306 × 6/12) .................. 153

Interest Payable ................................. 153

After making the above entry the company would have two current liabilities
relating to the note as follows:

Current liability
Interest payable $153
Note payable 7,647
 Problem 2

Starlight Graphics Ltd. signed a 10-year, 6.5%, $700,000 mortgage on

June 30, 2017, to help finance a new research laboratory. The mortgage
term provide for semi-annual blended principal and interest payments of
$48,145. Payments are due on December 31 and June 30. The
company’s year end is June 30.

Instructions:
a. Prepare an instalment payment schedule for the first two years.
Round all amounts to the nearest dollar.
b. Record the receipt of the mortgage loan on June 30, 2017.
c. Record the first two instalment payments, on December 31, 2017,
and June 30, 2018.
d. Show the statement of financial position presentation of the mortgage
payable at June 30, 2018.
 Interest
Semi-annual Cash Expense Reduction of Principal
Interest Period Payment 6.5% × 6/12 Principal Balance

June 30, 2017 $700,000

Dec. 31, 2017 $48,145 $22,750 $25,395 0674,605
0 0
June 30, 2018 48,145 21,925 26,220 648,385
Dec. 31, 2018 48,145 021,073 27,072 621,313
0 0
June 30, 2019 48,145 20,193 27,952 593,361
(b) 2017
June 30 Cash ........................................................ 700,000
Mortgage Payable ........................... 700,000
(a) 2017;
Dec. 31 Interest Expense ...................................... 22,750
Mortgage Payable .................................... 25,395
Cash ................................................ 48,145
2018
June 30 Interest Expense ...................................... 021,925
Mortgage Payable .................................... 26,220
Cash ................................................ 48,145
(d)
STARLIGHT GRAPHICS LTD.
Statement of Financial Position (Partial)
June 30, 2018
Current liabilities
Current portion of mortgage payable ............................... $ 55,024*
Non-current liabilities
Mortgage payable ............................................................ 0593,361
*($27,072 + $27,952) = $55,024
 Problem 3

On October 1, 2018, Spooner Corporation issued $800,000 of 10-year,

5% bonds at 100. Interest rate is payable semi-annually on October 1 and
April 1. Spooner’s year end is December 31 and the company records
adjusting entries annually.

Instructions:
a. Prepare journal entries to record the use of the bonds on October 1,
2018.
b. Record the accrual of interest on December 31, 2018.
c. Record the payment of interest on April 1, 2019.
d. Show the statement of financial position presentation of the mortgage
payable at June 30, 2018.
(a) 2018
1. Oct. 1 Cash ......................................................... 800,000
Bonds Payabl………………………………800,000

2. Dec. 31 Interest Expense ($800,000 × 5% × 3/12) 10,000

Interest Payable………………………………10,000

2019
3. Apr. 1 Interest Expense ($800,000 × 5% × 3/12) 10,000
Interest Payable......................................... 10,000
Cash ($800,000 × 5% × 6/12)………………..20,000
(b)
December 31, 2018
Current liabilities
Interest payable .................................................... $ 10,000
Non-current liabilities
Bonds payable, due 2028 800,000
 Problem 4
On July 1, 2017, Global Satellites Corporation issued $1.5 million of 10-year, 7% bonds to
yield a market interest rate of 6%. The bonds pay semi-annual interest on July 1 and
January 1. Global has a December 31 year end. When the bonds were issued, Global
received $1,611,587.

Instructions
(a) Prepare an amortization table through January 1, 2019 (three interest periods) for this
bond issue. Round all amounts to the nearest dollar.
(b) Record the issue of the bonds on July 1.
(c) Prepare the adjusting entry on December 31, 2018, to accrue the interest on the
bonds.
 Bond price= $1.5 million x 0.55368+$52,500 x 14.87747=$1,611,587

(A) (B) (C) (D) (E)

Semi- Interest Premium Unamor- Bond
annual Interest Expense Amor- tized Carrying
Interest to Be to Be tization Premium Amount
Periods Paid (7% × 6/12 = 3.5%) Recorded (6% × 6/12 = 3%) (A) – (B) (D) – (C) ($1,500,000 + D)

July 1/17 $111,587 $1,611,587

Jan. 1/18 $52,500 $48,348 $4,152 107,435 1,607,435
July 1/18 52,500 48,223 4,277 103,158 1,603,158
Jan. 1/19 52,500 48,095 4,405 98,753 1,598,753
July 1/19 52,500 47,963 4,537 94,216 1,594,216
 2017
(b) July 1 Cash ................................................. 1,611,587
Bonds Payable ........................ 1,611,587

Note: Interest would also be recorded January 1, 2018 and July 1, 2018 (not
illustrated here)

2018
(c) Dec. 31 Interest Expense............................... 48,095
Bonds Payable ................................. 4,405
Interest Payable ……………………….. 52,500