Question

On January 1, 2016, Knorr Corporation issued $1,400,000 of 7%, 5-year bonds dated January 1, 2016. The bonds pay interest annually on December 31. The bonds were issued to yield 8%. Bond issue costs associated with the bonds totaled $21,540.76.

Required:

Prepare the journal entries to record the following:

January 1, 2016	Sold the bonds at an effective rate of 8%
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

CHART OF ACCOUNTS
Knorr Corporation
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 195 Deferred Bond Issue Costs 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 255 Bonds Payable 256 Premium on Bonds Payable 257 Discount on Bonds Payable 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

Prepare the journal entries to record the following: Additional Instructions

January 1, 2016	Sold the bonds at an effective rate of 8%
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

!!!!!!!!!! Please fill out for both PAGE 2016 & PAGE 2017. There is supposed to be two separate charts with 10 entries. !!!!!!!!!!

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10

Answer 1

Calculate the current price of bond as follows: PVF. (8%,5) PVAF, (8%,5) Present Value of Principal (1400000 < 0.680583) 0.680583 3.99271 $952.816.20 Present Value of Interest (1400000x7%)x3.99271 $391,285.58 Current Price $1.344.101.78 Prepare the journal entries as follows: Α 1 Date 2 Jan. 1. 2016 D Credit Account Title and Explanation Cash Discount on bonds payable Bonds Payable (To record issuance of bonds) Debit $1,344,101.78 $55,898.22 $1,400,000.00 7 Jan 1, 2016 $21,540.76 Deferred Bond issue cost Cash (To record bond issue cost) $21,540.76 $107.528.14 11 Dec. 31, 2016 Interest Expense(1344101.78 x 8%) Discount on bonds payable 13 Cash(1400000 x 7%) (To record the payment of semi-annual interest) $9,528.14 $98,000.00 $4,308.15 17 16 Dec 31, 2016 Interest Expenseſ 21540.76 = 5 years) Deferred Bond issue cost (To record the amortozation of bond issue costs) $4,308.15 18 $108,290.39 20 Dec. 31, 2017 Interest Expense(1344101.78 +9528.14) x 8%) Discount on bonds payable Cash(1400000 x 7%) (To record the payment of semi-annual interest) $10,290.39 $98,000.00 $4.308.15 25 Dec 31, 2017 Interest Expenseſ 21540.76 = 5 years) Deferred Bond issue cost (To record the amortozation of bond issue costs) 26 $4,308.15

Calculations are shown below: D A 1 Date 2 Jan. 1, 2016 Credit Account Title and Explanation Cash Discount on bonds payable Bonds Payable (To record issuance of bonds) Debit 1344101.78 =D4-1344101.78 1400000 7 Jan. 1, 2016 21540.76 Deferred Bond issue cost Cash (To record bond issue cost) 21540.76 =1344101.78*8% 11 Dec. 31, 2016 Interest Expense(1344101.78 x 8%) Discount on bonds payable 13 Cash(1400000 x 7%) (To record the payment of semi-annual interest) =C11-D13 =1400000*7% =( 21540.76/5) =C16 16 Dec 31, 2016 Interest Expenseſ 21540.76 - 5 years) Deferred Bond issue cost (To record the amortozation of bond issue costs) 19 20 Dec. 31, 2017 Interest Expense((1344101.78 +9528.14) x 8%) Discount on bonds payable Cash(1400000 x 7%) (To record the payment of semi-annual interest) =((1344101.78 +9528.14) * 8%) =C20-D22 =1400000*7% =( 21540.76/5) 25 Dec 31, 2017 Interest Expensel 21540.76 + 5 years) Deferred Bond issue cost 27 (To record the amortozation of bond issue costs) 26 =C25