Question

On October 1, 2019, Ball Company issued 10% bonds dated October 1, 2019, 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 2019 and 2020 using the effective interest method.
2.	Prepare journal entries to record the issuance of the bonds and the interest payments for 2019 and 2020 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

Answer 1

1. Journal entries using the effective interest method:
Date	Account Title	Debit	Credit
		$	$
October 1 2019	Cash	1,95,094.43
	Bonds payable		1,90,000.00
	Premium on bonds payable		5,094.43
December 31 2019	Interest expense (195,094.43*9.6%*3/12)	4,682.27
	Premium on bonds payable	67.73
	Interest payable (190000*10%*3/12)		4,750.00
March 31 2020	Interest expense  (($195,094.43-67.73)*9.6%*3/12)	4,680.64
	Interest payable	4,750.00
	Premium on bonds payable	69.36
	Cash  (190000*10%*6/12)		9,500.00
September 30 2020	Interest expense	9,357.95
	Premium on bonds payable	142.05
	Cash		9,500.00
2. Journal entries using the straight-line method:
Date	Account Titles	Debit	Credit
		$	$
October 1 2019	Cash	1,95,094.43
	Bonds payable		1,90,000.00
	Premium on bonds payable		5,094.43
December 31 2019	Interest expense	4,634.22
	Premium on bonds payable ($5094.43/(11*12)*3)	115.78
	Interest payable (190,000*10%*3/12)		4,750.00
March 31 2020	Interest expense	4,634.22
	Interest payable	4,750.00
	Premium on bonds payable ($5094.43/(11*12)*3)	115.78
	Cash (190,000*10%*6/12)		9,500.00
September 30 2020	Interest expense	9,268.44
	Premium on bonds payable ($5094.43/(11*12)*6)	231.57
	Cash (190,000*10%*6/12)		9,500.00