Question

On January 1, 2020, Oriole Corporation issued $1,550,000 face value, 6%, 10-year bonds at $1,441,134. This price resulted in an effective-interest rate of 7% on the bonds. Lock uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on January 1.

Prepare the journal entry to record the issuance of the bonds on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
January 1, 2020

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Prepare an amortization table through December 31, 2022 (three interest periods) for this bond issue. (Round answers to 0 decimal places, e.g. 15,250.)

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								$		$
1		$		$		$
2
3

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Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2020. (Round answers to 0 decimal places, e.g. 15,250. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2020

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Prepare the journal entry to record the payment of interest on January 1, 2021. (Round answers to 0 decimal places, e.g. 15,250. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2021

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Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2021. (Round answers to 0 decimal places, e.g. 15,250. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2021

Please show your work and the formulas used for my understanding of the question

Answer 1

No. Date Credit ($) Journal Account Titles and Explanation January 1, 2020 Cash Discount on Bonds Payable Bonds Payable (To record the issuance of bond) Debit ($) 1,441,134 108,866 1,550,000

Annual Interest Interest to Be Periods Paid 1/1/2020 12/31/2020 $ 93,000 12/31/2021 $ 93,000 12/31/2022 $ 93,000 Amortization Schedule (Discount) Unamortized Interest Expense to Discount Discount = Previous Be Recorded = Amortization = year Unamortized Previous year Carrying Interest expense Discount - Discount Market rate value X Market rate Coupon Amortization - $ 108,866 7% $ 100,879 $ 7,879 $ 100,987 7% $ 101,431 $ 8,431 $ 92,556 7% $ 102,021 $ 9,021 $ 83,535 Carrying value = Previous year carrying value + Increase in Carrying Value $ 1,441,134 $ 1,449,013 $ 1,457,444 $ 1,466,465 FV Coupon rate Coupon = FV X Coupon rate 6% $ 93,000 1,550,000 Total discount = 1550000-1441134 = 108866

100,879 December 31, 2020 Interest Expense Discount on Bonds Payable Interest payable (To record the accrual of interest and discount amortization on bonds payable) 7,879 93,000 93,000 January 1, 2021 Interest payable Cash (To record the payment of interest) 93,000 101,431 December 31, 2021 Interest Expense Discount on Bonds Payable Interest payable (To record the accrual of interest and discount amortization on bonds payable) 8,431 93,000