Question

 On January 1, 2016, Knorr Corporation issued $1,400,000 of 6%, 5-year bonds dated January 1, 2016. The bonds pay interest annually on December 31. The bonds were issued to yield 7%. Bond issue costs associated with the bonds totaled 522,107.40.

 Required:

 Prepare the journal entries to record the following:

 January 1, 2016 Sold the bonds at an effective rate of 7%

 December 31, 2016 First interest payment using the effective interest method

 December 31, 2016 Amortization of bond issue costs using the straight-line method

 December 31, 2017 Second interest payment using the effective interest method

 December 31, 2017 Amortization of bond issue costs using the straight-line method

Answer 1

JOURNAL ENTRIES IN THE BOOKS OF KNORR CORPORATION
DATE	PARTICULARS	DEBIT ($)	CREDIT ($)
01-Jan-16	CASH A/C	$11,77,892.60
	EXPENSES ON ISSUE A/C	$22,107.40
	DISCOUNT ON ISSUE OF BOND A/C	$2,00,000.00
	TO BONDS A/C		$14,00,000.00
31-Dec-16	INTEREST EXPENSE ON BOND A/C	$84,000.00
	TO CASH A/C		$84,000.00
31-Dec-16	PROFIT & LOSS A/C	$44,421.48
	TO EXPENSES ON ISSUE A/C		$4,421.48
	TO DISCOUNT ON ISSUE OF BOND A/C		$40,000.00
31-Dec-17	INTEREST EXPENSE ON BOND A/C	$84,000.00
	TO CASH A/C		$84,000.00
31-Dec-17	PROFIT & LOSS A/C	$44,421.48
	TO EXPENSES ON ISSUE A/C		$4,421.48
	TO DISCOUNT ON ISSUE OF BOND A/C		$40,000.00