Pido, Rea Lee Joy U. 13/04/21
a. On August 1, 2015, the Mercury Corporation issued 5, 000,000, 8% bonds dated March 1, 2015
and maturing on February 28, 2030, for a total consideration of 4, 458, 429, which includes
accrued interest. The bonds pay interest annually every February 28. The issue price provides a
yield of 10%.
Mercury Corporation closes its books annually every December 31.
Required:
a. Prepare all entries in the books of Mercury Corporation for the years 2015 and 2016,
including year-end adjustments.
b. How much is the interest expense for years 2015 and 2016?
c. At what amount should the bonds payable be shown on the statement of financial position
at December 31, 2015 and December 31, 2016?
ANSWER:
A.)
2015
Aug. 1 Cash 4, 458,429
Discount on bonds payable 708, 238
Interest payable 166, 667
Bonds payable 5, 000,000
[5, 000,000 x 8% x 5/12= 166, 667]
[4, 458,429 – 166, 667 = 4, 291,762]
[5, 000,000 – 4, 291,762 = 708, 238]
Dec. 31 interest expense 178, 823
Interest payable 166, 666
Discount on bonds payable 12, 157
[5, 000,000 x 8% x 5/12 = 166, 666]
[4, 291, 762 x 10% x 5/12 = 178, 823]
[5, 000,000 – 4, 291, 762 = 708, 238]
a. On August 1, 2015, the Mercury Corporation issued 5, 000,000, 8% bonds dated March 1, 2015
and maturing on February 28, 2030, for a total consideration of 4, 458, 429, which includes
accrued interest. The bonds pay interest annually every February 28. The issue price provides a
yield of 10%.
Mercury Corporation closes its books annually every December 31.
Required:
a. Prepare all entries in the books of Mercury Corporation for the years 2015 and 2016,
including year-end adjustments.
b. How much is the interest expense for years 2015 and 2016?
c. At what amount should the bonds payable be shown on the statement of financial position
at December 31, 2015 and December 31, 2016?
ANSWER:
A.)
2015
Aug. 1 Cash 4, 458,429
Discount on bonds payable 708, 238
Interest payable 166, 667
Bonds payable 5, 000,000
[5, 000,000 x 8% x 5/12= 166, 667]
[4, 458,429 – 166, 667 = 4, 291,762]
[5, 000,000 – 4, 291,762 = 708, 238]
Dec. 31 interest expense 178, 823
Interest payable 166, 666
Discount on bonds payable 12, 157
[5, 000,000 x 8% x 5/12 = 166, 666]
[4, 291, 762 x 10% x 5/12 = 178, 823]
[5, 000,000 – 4, 291, 762 = 708, 238]
