required information use the following information for quick studies below. (algo) the following information…
required information use the following information for quick studies below. (algo) the following information applies to the questions displayed below. dunphy company issued $44,000 of 10.0%, 10 - year bonds at par value on january 1. interest is paid semiannually each june 30 and december 31. qs 14 - 3 (algo) financial statement impact of bond transactions lo p1 analyze transactions by showing their effects on the accounting equation—specifically, identify the accounts and amounts (including + or -) for each transaction.
Answer
Explanation:
Step1: Analyze January 1 transaction
On January 1, when the bonds are issued at par value, cash (an asset) increases by $44,000 and bonds payable (a liability) increases by $44,000. So for January 1, Assets: Cash + $44,000; Liabilities: Bonds Payable + $44,000.
Step2: Analyze June 30 transaction
The semiannual interest rate is $\frac{10.0%}{2}=5%$. The interest amount is $44,000\times5% = 2,200$. Interest expense is recognized and cash (an asset) decreases by $2,200. Also, interest payable (a liability) is reduced as the payment is made. So for June 30, Assets: Cash - $2,200; Liabilities: Interest Payable - $2,200 (assuming interest was accrued previously, if not, just the cash - $2,200 and no impact on liability for this simple case of payment at interest - due date).
Answer:
| Date | Assets | = | Liabilities |
|---|---|---|---|
| January 1 | Cash + $44,000 | = | Bonds Payable + $44,000 |
| June 30 | Cash - $2,200 | = | Interest Payable - $2,200 (or no liability impact if no prior - accrual) |