Question

On January 1, 2020, Indigo Corporation issued $687,000 of 8% bonds that are due in 10 years. The bonds were issued for $735,820 and pay interest each July 1 and January 1. The company uses the effective interest method. Assume an effective rate of 7%.

(a)Prepare Indigo Corporation’s journal entry for the January 1 issuance. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1

(b)Prepare the company’s journal entry for the July 1 interest payment. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
July 1

Answer 1

@ Date Acound Tables & Explanation Debil Credil Jan. Cash 9735820 Premium on Bonds payable 8 48820 Bonds payable 4 68 7000 C To record bond issuance) * Premium on bonds payable = ($735820 - $ 687000 ) 48820 1 Credit Julys Interest Inderers Expense $25754 boodspayable $ 1726 0 Date Account titles 8 Explanation Debit Premium on bondspayable Cash (Te recordind enesl expenses expenses = ($ 735820 X 71X6112) $ 27480 * Interey 9 25754 cash = ($ 687000 X 80%.x 6112) * & 27480