Question

On October 1, 2016, Ball Company issued 10% bonds dated October 1, 2016, with a face amount of $190,000. The bonds mature in 11 years. Interest is paid semiannually on March 31 and September 30. The proceeds from the bond issuance were $195,094.43 to yield 9.60%. Ball Company has a December 31 fiscal year-end and does not use reversing entries.

Required:

1.	Prepare journal entries to record the issuance of the bonds and the interest payments for 2016 and 2017 using the effective interest method.
2.	Prepare journal entries to record the issuance of the bonds and the interest payments for 2016 and 2017 using the straight-line method.

CHART OF ACCOUNTS
Ball Company
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 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 258 Interest 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 journal entries to record the issuance of the bonds and the interest payments for 2016 and 2017 using the effective interest method. Additional Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

Prepare journal entries to record the issuance of the bonds and the interest payments for 2016 and 2017 using the straight-line method. Additional Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

Answer 1

Solution:

Effective Interest method:

Date	General Journal	Debit	Credit
Oct.1,2016	Cash	$195,094
	Premium on bonds payable		$ 5,094
	Bonds payable		$190,000
Dec.31,2016	Interest Expense	$4,682
	Premium on bonds payable (5,094/11)*1/4	$68
	Interest payable		$4,750
	(To record an adjusting entry)
March.31,2017	Interest Expense	$4,682
	Interest payable	$4,750
	Premium on bonds payable	$68
	Cash		$9,500
Sept.30,2017	Interest Expense	$9,358
	Premium on bonds payable	$ 142
	Cash		$9,500

Workings:

Straight line method:

Date	General Journal	Debit	Credit
Oct.1,2016	Cash	$195,094
	Premium on bonds payable		$ 5,094
	Bonds payable		$190,000
Dec.31,2016	Interest Expense	$4,634
	Premium on bonds payable (5,094/11)*1/4	$116
	Interest payable		$4,750
	(To record an adjusting entry)
March.31,2017	Interest Expense	$4,634
	Interest payable	$4,750
	Premium on bonds payable	$116
	Cash		$9,500
Sept.30,2017	Interest Expense	$9,268
	Premium on bonds payable	$ 232
	Cash		$9,500