Question

Requirements (1) Joumaline the following transactions of Lamore Communication, Inc.(8marks) 2010 Jan 1 Issued $4,000,000 of 7%, 10-year bonds payable when the market rate is 6%, and the price is 4,297,546. Juli Paid semi-annual interest and amortized the bonds by the effective interest method on the 7% bonds payable. Dec 31 Accrued semi-annual interest expense and amortized the bonds by the effective interest method on the 7% bonds payable. 2011 Jan 1 Paid semi-annual interest. 2020 Jan 1 Paid the 7% bonds at maturity. (2) At December 31, 2010, after all year-end adjustments, determine the carrying amount of Lamore Communication bonds payable, net.(2 marks)

Answer 1

(1) Journal entries are as prepared below:

Year	Particulars	L.F	Debit ($)	Credit ($)
2010
Jan-01	Cash		4,297,546
	Premium on Bonds Payable			297,546
	Bonds Payable			4,000,000
	(For bonds issued at premium)
Jul-01	Interest Expense (4,297,546*6%*6/12)		128,926
	Premium on Bonds Payable		11,074
	Cash (4,000,000*7%*6/12)			140,000
	(For paid for interest)
Dec-31	Interest Expense (4,286,472*6%*6/12)		128,594
	Premium on Bonds Payable		11,406
	Interest Payable (4,000,000*7%*6/12)			140,000
	(For paid for interest)
2011
Jan-01	Interest Payable		140,000
	Cash			140,000
	(For cash paid on interest)
2020
Jan-01	Bond Payable		4,000,000
	Cash			4,000,000
	(for bonds matured)

(2) Carrying amount of Bonds on December 31, 2010 is as shown below:

Bonds Payable $4,286,472