Question

a company, issued bonds on 1/1/xi, It uses the neffective interest method to amortize bond discounts and premiums. ning: The following facts are known about these bonds Issue Date: 1/1/X1 Face Value: $200,000 Issue Price: $217,965 Face Rate: 6% compounded semi-annually (in other words, 3% every six months) Market (Effective) Rate: 4% compounded semi-annually in other words, 2% every six months) Term: 5 years Semi-Annual Interest Payment Dates: June 30 and Dec 31 First interest payment will occur on: June 30, 20X1 Note: Round all calculations to the nearest whole dollar. Required: Using the above information, prepare the journal entries to record: (1) the issuance of the bonds and (2) the first cash interest payment on 6/30/X1. Remember to round all amounts to the nearest whole dollar. Decimals or cents should not be shown in the numerical response portion of your journal entry Date Account Name Debit Credit 1/1/X1 6/30/X1

Answer 1

Date 1/1/X1 Issue Entry 1. Record the Bond Issue Accounts Name Debit Cash Premium on Bonds Payable Bonds Payable Record the issue of the Bond with Premium Credit 217965 17965 200000 Date 6/30/X1 Record the interest Payment 2. Record the interest Paymnet and amotization General Journal Debit Interest Expenses Premium on Bonds Payable Cash Record the interest Paymnet and amotization Credit 4359 1641 6000 Cash interest = 200000*3% =6000 Interest Expenses 217965*2%=4359