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1. P13.
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2. Information Related to Various Bond Issues) Karen Austin Inc. has issued three types of debt
on January 1, 2020, the start of the company’s fiscal year.
a. $10 million, 10-year, 15% unsecured bonds, interest payable quarterly. Bonds were priced to
yield 12%.
b. $25 million par of 10-year, zero-coupon bonds at a price to yield 12% per year.
c. $20 million, 10-year, 10% mortgage bonds, interest payable annually to yield 12%.
Instructions
Prepare a schedule that identifies the following items for each bond: (1) maturity value, (2)
number of interest periods over life of bond, (3) stated rate per each interest period, (4)
effective-interest rate per each interest period, (5) payment amount per period, and (6) present
value of bonds at date of issue.
3. Peter Company sold the following bond on January 1, 2023: $100.000; 4% bonds due on
01/01/2028 with payments semiannually on January 1 and July 1.
The current market rate of interest on the date of sale was 6%.
Assume the sales price was $91,470
Required:
1. Use the effective interest rate method of amortization to prepare the Schedule of Bond
Discount Amortization and explain number on the Schedule of Bond Discount Amortization
2. Prepare the journal entry at the date of the bond issuance and the interest payment and the
amortization for 2023.
Answer:
Carrying
Cash Interest Discount Amount
Date Paid Expense Amortized of Bonds
1/1/2023 $91.470
7/1/2023 $2.000 $2.744 $744 $92.214
1/1/2024 $2.000 $2.766 $766 $92.980
7/1/2024 $2.000 $2.789 $789 $93.770
1/1/2025 $2.000 $2.813 $813 $94.583
7/1/2025 $2.000 $2.837 $837 $95.420
1/1/2026 $2.000 $2.863 $863 $96.283
7/1/2026 $2.000 $2.888 $888 $97.171
1/1/2027 $2.000 $2.915 $915 $98.087
7/1/2027 $2.000 $2.943 $943 $99.029
1/1/2028 $2.000 $2.971 $971 $100.000
Journal entry at the date of the bond issuance and the interest payment and the amortization
for 2023.
4. During Year 1, Min Company incurred costs to develop and produce a routine, low – risk
computer software product, as described below:
Completion of detail program design: $12,000
Costs incurred for coding and testing to establish technological feasibility: $12,000.
Other coding costs after establishment of technological feasibility: $24,000
Other testing costs after establishment of technological feasibility: $19,000
Costs of producing product masters for training materials: $13,000
Duplication of computer software and training materials from product masters (1,000 units):
$22,000
Packaging product (500 units) :$8,000
Instructions
1. In Min’s December 31, Year 1, balance sheet, what amount should be reported in inventory?
2. In Min’s December 31, Year 1, balance sheet, what amount should be capitalized as software
cost subject to amortization?
5. On June 2, Year 1,Ton Company issued $500,000 of 10%, 10 year bonds at par. Interest is
payable seminannually on June 1 and December 1. Bond issue costs were $9,000 and Ton uses
the straight-line method of amortizing bond issue costs. On June 2, Year 6, Tony retired half of
the bonds at 98. What is the net carring amount that Ton should use in computing the gain or
loss on retirement of debt?
6. On January 1, 2023, Aumont Company sold 12% bonds having a maturity value of $500,000
for $537,907.37, which provides the bondholders with a 10% yield. The bonds are dated January
1, 2023, and mature January 1, 2028, with interest payable December 31 of each year. Aumont
Company allocates interest and unamortized discount or premium on the effective-interest
basis.
Instructions
(Round answers to the nearest cent.)
a. Prepare the journal entry at the date of the bond issuance.
b. Prepare a schedule of interest expense and bond amortization for 2023–2025.
c. Prepare the journal entry to record the interest payment and the amortization for 2023,2024,
2025.
6. On January 2, Pan Co acquired Shen Co in a business combination that resulted in recognition
of goodwill of $300,000 having an expected benefit period of 10 years. Shen is treated as a
reporting unit, and the entire amount of the recognized goodwill is assigned to it. During the
first quarter of the year. Shen spent an additional $50,000 on expenditures designed to
maintain goodwill. Due to these expenditures, at December 31, Shen estimated that the benefit
period of goodwill was 40 years.In its consolideted December 31 balance sheet, what amount
should Pan report as goodwill?

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