Ike issues $180,000 of 11%, three-year bonds dated January 1, 2020, that pay interest semiannually on June
Question:
Ike issues $180,000 of 11%, three-year bonds dated January 1, 2020, that pay interest semiannually on June 30 and December 31. They are issued at $184,566 when the market rate is 10%.
Required
1. Prepare the January 1 journal entry to record the bonds’ issuance.
2. Determine the total bond interest expense to be recognized over the bonds’ life.
3. Prepare an effective interest amortization table like Exhibit 10B.2 for the bonds’ first two years.
4. Prepare the journal entries to record the first two interest payments.
Exhibit 10B.2
Bonds: $100,000 Par Value, Semlannual Interest Payments, Two-Year Life, 6% Semlannual Contract Rate, 4.9851% Semlannual Market Rate Effective Interest (A) Cash (B) (C) (D) (日 Amortization of Bond Bond Semlannual Interest Premium Interest Premium Unamortized Interest Pald Carrying Expense 6% x $100,000 4.9851% x Prior (E) Amortization Premium Perlod-End Value S103600 (A)– (B) Prior (D) - (C) $102.765 $100,000 + (D) (0) (1) 12/31/2020 $3,600 $103,600 SID0,967 6/30/2021 $ 6,000 $ 5,165 $ 835 2,765 102,765 (2) 12/31/2021 6,000 Carrying value S100,000 5,123 877 1,888 101,888 (3) 6/30/2022 6,000 5,079 921 967 6/30/21 12/31/21 6/30/22 12/31/22 100,967 (4) 12/31/2022 6,000 5,033 967 100,000 $24,000 $20,400 $3,600 Bonds Payable Column (A) is the par value ($100,000) multiplied by the semiannual contract rate (6%). Column (B) is the prior period's carrying value multiplied by the semiannual market rate (4.9851%). Column (C) is the difference between interest paid and bond interest ex pense, or [(A) – (B)]. Column (D) is the prior period's unamortized premium less the current period's premium amortization. Column (E) is the par value plus unamortized premium, or [S100,000 + (D)]. 12/31/2020 100,000 630/2021 12/31/2021 630/2022 12/31/2022 100,000 |12/31/2022 Premium on Bonds Puyable 12/31/2020 3,600 6/30/2021 835 12/31/2021 877 6/30/2022 921 12/31/2022 967 12/31/2022 12/31/20
Step by Step Answer:
ANSWER 2Total bond interest expense to be recognized over the bonds life The bond interest expense c...View the full answer
Financial Accounting Information For Decisions
ISBN: 9781260705584
10th Edition
Authors: John J. Wild
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A journal entry is an act of keeping or making records of any transactions either economic or non-economic. Transactions are listed in an accounting journal that shows a company\'s debit and credit balances. The journal entry can consist of several recordings, each of which is either a debit or a credit
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