On January 1, 2012, Witzling Company issued $4,000,000 face value, 8%, 15-year bonds at $3,391,514. This price

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On January 1, 2012, Witzling Company issued $4,000,000 face value, 8%, 15-year bonds at $3,391,514. This price resulted in an effective-interest rate of 10% on the bonds. Witzling uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January 1.

Instructions
(a) Prepare the journal entries to record the following transactions.
(1) The issuance of the bonds on January 1, 2012.
(2) The accrual of interest and the amortization of the discount on December 31,
2012.
(3) The payment of interest on January 1, 2013.
(4) The accrual of interest and the amortization of the discount on December 31, 2013.
(b) Show the proper long-term liabilities balance sheet presentation for the liability for bonds payable at December 31, 2013.
(c) Provide the answers to the following questions in narrative form.
(1) What amount of interest expense is reported for 2013?
(2) Would the bond interest expense reported in 2013 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?
(3) Determine the total cost of borrowing over the life of the bond.
(4) Would the total bond interest expense be greater than, the same as, or less than the total interest expense that would be reported if the straight-line method of amortization were used?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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Financial Accounting Tools for business decision making

ISBN: 978-0470534779

6th Edition

Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso

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