Exercise 10-5A Journal entries for a line of credit

Accounting for Long-Term Debt

Exercise 10-5A Journal entries for a line of credit

Singer Company has a line of credit with United Bank. Singer can borrow up to $400,000 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during the first three months of Year 1. Singer agreed to pay interest at an annual rate equal to 2 percent above the bank’s prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The interest rate is applied to the outstanding monthly balance. For example, Singer pays 6.5 percent (4.5 percent + 2 percent) annual interest on $140,000 for the month of February.

Required

Provide all journal entries pertaining to Singer’s line of credit for the first three months of Year 1.

Exercise 10-6A Two accounting cycles for bonds issued at face value

Doyle Company issued $500,000 of 10-year, 7 percent bonds on January 1, Year 1. The bonds were issued at face value. Interest is payable in cash on December 31 of each year. Doyle immediately invested the proceeds from the bond issue in land. The land was leased for an annual $125,000 of cash revenue, which was collected on December 31 of each year, beginning December 31, Year 1.

Required
a. Prepare the journal entries for these events, and post them to T-accounts for Year 1 and Year 2.
b. Prepare the income statement, balance sheet, and statement of cash flows for Year 1 and Year 2.

Exercise 10-7A Two accounting cycles for bonds issued at face value

On January 1, Year 1, Bell Corp. issued $180,000 of 10-year, 6 percent bonds at their face amount. Interest is payable on December 31 of each year with the first payment due December 31, Year 1.

Required

Prepare all the general journal entries related to these bonds for Year 1 and Year 2.

Exercise 10-8A Journal entries for callable bonds

Nivan Co. issued $500,000 of 5 percent, 10-year, callable bonds on January 1, Year 1, at their face value. The call premium was 3 percent (bonds are callable at 103). Interest was payable annually on December 31. The bonds were called on December 31, Year 5.

Required

Prepare the journal entries to record the bond issue on January 1, Year 1, and the bond redemption on December 31, Year 5. Entries for accrual and payment of interest are not required.