Question

Harvey Company issued $612,000 of 10%, 20-year bonds on January 1, 2017, at 102. Interest is payable semiannually on July 1 and January 1. Harvey Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%

Prepare the journal entries to record the following:

(a)		The issuance of the bonds.
(b)		The payment of interest and related amortization on July 1, 2017.
(c)		The accrual of interest and the related amortization on December 31, 2017.

Answer 1

Solution Given that, Harvey company issued $ '612000 f104., 20-year bona's on January 1, 2017 at $102 each. Let assume Face Value (fv) pee bond is (al pee given information) and issued at $102 each. nie., premium on bonds issued is = $ 102 - $100 a $2 pee bond. Amount (1) of preium is $28 $612000 $ 100 6120 bonds = $28 a $12240. is.. Amortization of for 20+ years. premium $612 per for 2017 amortization annum). = $12240 => 20 years. the years. as similarly, for all
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10 Computation of Interest Expense on bonds. 18 Interest 3) $ 30600 Expense on July 2017.8 ( $602000 X 10.1, x 6 months - 12 months) Less: ($306) Adjustment of amortization of premium for 6months is (4 612 (computed ) aboue (1) Interest Expense on July 1st = $30294 (16) Interest Expense accrued on Dec, 31t 2017 0 -) $ 30600 ( $612000 x 10 y. X 6 M ) 12 M les: Adjustment of amortization of premium for remaining 6 months ) ($306) ( $612 = $306.) W $30294 Expense accrued on Dec 31, 2017 Interest

fegursements (a) Journal Entry for issuance of bonds Debit) Oreclit ) 2017 2017 cath ($612000 x 1021) ... – 624240 Jan, 1 612000 Bonds payable ---- 12240 premium on bonds (being bonds issued at premium) amortization on July 1, (6) Tournal Entry for Interest Expense and 2017 eredit (6) Debit (8) July, Bond Interest Expense 2(1) - - - - 30294 premium on bonds payable 217) - - - 306 30600 cath ($612000X 10 %. * 6/12) - (being Interest premium Expense paid amortization and entry passed) (c) Journal Entry for accrual of Interest and Related amortization on December 1, 2017 : debit ) Credi) (0) Bond interest Expense 2011) --- 30294 Premium on bonds payable 2011) --- 306 Dec, 37 30600 (being Interest payable. (612000 X 104:x412) Interest accrued on bond & Amortization adjusted)
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