On January 1, 2017, Lock Corporation issued $3,520,000 facevalue, 8%, 10-year bonds at $3,294,098. This...
| On January 1, 2017, Lock Corporation issued $3,520,000 face value, 8%, 10-year bonds at $3,294,098. This price resulted in an effective-interest rate of 9% on the bonds. Lock uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on January 1. |  |
|
Homework Answers
| LOCK CORPORATION | |||||
| Bond Discount Amortization | |||||
| Effective- Interest Method- Annual Interest Payments | |||||
| Annual Interest Periods | Interest to be Paid | Interest Expense to be Recorded | Discount Amortization | Unamortized Discount | Bond Carrying Value |
| Issue date | $225902 | $3294098 | |||
| 1 | $281600 | $296469 | $14869 | 211033 | 3308967 |
| 2 | 281600 | 297807 | 16207 | 194826 | 3325174 |
| 3 | 281600 | 299266 | 17666 | 177160 | 3342839 |
Discount on bonds payable= $3520000-3294098= $225902
Unamortized Discount
Year 1= $225902-14869= $211033
Year 2= $211033-16207= $194826
Year 3= $194826-17666= $177160
c)
| Date | Account titles and explanation | Debit | Credit |
| December 31, 2017 | Interest expense | $296469 | |
| Cash | $281600 | ||
| Discount on bonds payable | $14869 | ||
| (To record accrual of interest and the amortization of discount) | |||
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