Question

PLEASE WORK OUT STEP BY STEP. PROFESSOR IS A TOUGH GRADER . THANK

Bates Corporation issued $800,000 of 14% bonds for $849,676. The bonds were dated April 1, 2018, are due March 31, 2023 (5 years), and pays interest semi-annually on September 30 and March 31. The market yield for bonds of similar risk and maturity was 12%. Bates fiscal year-end is December 31l.

Required:

Prepare the journal entries for (a) issuance of bonds and (b) September 30 and March 31 interest payments assuming the company used the effective interest method.

Answer 1

Journal entries: 1 А No. a. OD Credit Debit $849,676 в Date Account Titles and Explanation 1-Apr-18 Cash Premium on bonds payable Bonds payable (To record issuance of bonds) $49,676 $800,000 b. $50,981 $5,019 30-Sep-18 Interest expense Premium on bonds payable Cash (To record interest payment) $56,000 S50.679 $5,321 31-Mar-19 Interest expense Premium on bonds payable Cash (To record interest payment) $56,000 Calculations are shown below: AB 1 No. Date 2 a. 43191 Debit Credit 849676 Account Titles and Explanation Cash Premium on bonds payable Bonds payable (To record issuance of bonds) =D2-E4 800000 b. 43373 =D2*12%*(6/12) 1=E9-D7 Interest expense Premium on bonds payable Cash (To record interest payment) =E4*14%*(6/12) 43555 =(D2-D8) 12%*(6/12) 1=E14-D12 Interest expense Premium on bonds payable Cash (To record interest payment) =E4*14%*(6/12)