Question

On January 1, 2020, Cullumber Company issued $2,410,000, 7%, 10-year bonds at $2,587,378. This price resulted in a 6% effective-interest rate on the bonds. Cullumber uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1.

Prepare the journal entries to record the following transactions. (Round answers to 0 decimal places, e.g. 15,250. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(1)		The issuance of the bonds on January 1, 2020.
(2)		Accrual of interest and the amortization of the premium on December 31, 2020.
(3)		The payment of interest on January 1, 2021.
(4)		Accrual of interest and amortization of the premium on December 31, 2021.

No.	Date	Account Titles and Explanation	Debit	Credit
(1)	Jan. 1, 2020
(2)	Dec. 31, 2020
(3)	Jan. 1, 2021
(4)	Dec. 31, 2021

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List of Accounts

  

  

Show the proper long-term liabilities balance sheet presentation for the liability for bonds payable at December 31, 2021. (Round answers to 0 decimal places, e.g. 15,250. Enter account name only and do not provide descriptive information.)

Cullumber Company Balance Sheet (Partial)                                                                       December 31, 2021For the Month Ended December 31, 2021For the Year Ended December 31, 2021
			$
AddLess:

  

Provide the answers to the following questions.

(1) What amount of interest expense is reported for 2021? (Round answers to 0 decimal places, e.g. 15,250.)

Interest expense reported for 2021

$

(2) Would the bond interest expense reported in 2021 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?

The bond interest expense reported in 2021 will be                                                                       same asgreater thanless than the amount that would be reported if the straight-line method of amortization.

Please show how you got the answers with the formulas

Answer 1

1	No.	Date	General Journal	Debit	Credit
	1	Jan 1, 2020	Cash	$2,587,378
			Bonds Payable		$2,410,000
			Premium on Bonds Payable		$177,378
	2	Dec 1, 2020	Interest Expense	$155,243		($2,587,378 x 6%)
			Premium on Bonds Payable	$13,457		Balance
			Interest Payable		$168,700	($2,410,000 x 7%)
	3	Jan 1, 2021	Interest Payable	$168,700
			Cash		$168,700
	4	Dec 1, 2021	Interest Expense	$154,435		[($2,587,378 - $13,457) x 6%]
			Premium on Bonds Payable	$14,265		Balance
			Interest Payable		$168,700	($2,410,000 x 7%)
2	Cullumber Company
	Balance Sheet (Partial)
	December 31, 2021
	Current Liabilities
		Interest Payable			$168,700
	Non-current Liabilities
		Bonds Payable		$2,410,000
		Add: Premium on Bonds Payable		$149,656	$2,559,656
3	Interest expense is reported for 2021			$154,435
4	The bond interest expense reported in 2021 will be $3,473
	less than the amount that would be reported if the straight-line method of amortization
	Working
	($168,700 - $17,738) = $150,962
	$154,435 - $150,962 =