Question

On January 1, 2018, Irik Corporation issued $2,550,000 face value, 7%, 10-year bonds at $2.378,893. This price resulted in an effective- interest rate of 8% on the bonds. The bonds pay annual interest, each January 1. Prepare the journal entry to record the issue of the bonds on January 1, 2018. (Credit account titles are automatically Indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Jan. 1, 2018 Prepare an amortization table through December 31, 2021 (three interest periods) for this bond issue. Decenriods) for this bond issue. December 31 is the company's year-end. (Round answers to the nearest whole dollar, e.g. 5,275.) IRIK CORPORATION Bond Discount Amortization Effective-Interest Method - Annual Interest Payments Annual Interest Periods Interest to Be Paid Interest Expense to Be Recorded Discount Amor- tization Unamor- tized Discount Bond Carrying Amount Issue date-Jan. 1/18 1 - Jan. 1/19 2 - Jan. 1/20 3 - Jan. 1/21 Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to the nearest whole dollar, eg. 5,275.) Date Account Titles and Explanation Debit Credit Dec. 31, 2018 Prepare the journal entry to record the payment of interest on January 1, 2019. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to the nearest whole dollar, eg. 5,275.) Date Account Titles and Explanation Debit Credit Jan 1, 2019 Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2019. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to the nearest whole dollar, e.g. 5,275.) Date Account Titles and Explanation Debit Credit Dec 31, 2019

Answer 1

Solution 1:

Journal Entries - IRIK Corporation
Date	Particulars	Debit	Credit
1-Jan-18	Cash Dr	$2,378,893.00
	Discount on issue of bond Dr	$171,107.00
	To Bond Payable		$2,550,000.00
	(To record issue of bond at discount)

Solution 2:

Bond Amortization Schedule
Period	Interest to be paid	Interest Expense to be recorded	Discoount Amortization	Unamortized Discount	Bond Carrying amount
1-Jan-18				$121,107	$2,378,893
1-Jan-19	$178,500	$190,311	$11,811	$109,296	$2,390,704
1-Jan-20	$178,500	$191,256	$12,756	$96,539	$2,403,461
1-Jan-21	$178,500	$192,277	$13,777	$82,762	$2,417,238

Solution 3:

Journal Entries - IRIK Corporation
Date	Particulars	Debit	Credit
31-Dec-18	Interest expense Dr	$190,311.00
	To Discount on issue of bond		$11,811.00
	To Interest payable		$178,500.00
	(To record interest expense and discount amortization)
1-Jan-19	Interest payable Dr	$178,500.00
	To Cash		$178,500.00
	(To record annual interest payment)
31-Dec-19	Interest expense Dr	$191,256.00
	To Discount on issue of bond		$12,756.00
	To Interest payable		$178,500.00
	(To record interest expense and discount amortization)