Question: Long Term Liabilities - Problem 2 ABC Corporation issued $800,000 of 8% bonds on October 1, 2015, due on October 1, 2020. The interest is

Long Term Liabilities - Problem 2

ABC Corporation issued $800,000 of 8% bonds on October 1, 2015, due on October 1, 2020. The interest is to be paid twice a year on April 1 and October 1. The bonds were sold to yield 10% effective annual interest. J & J Corporation closes its books annually on December 31.

Required:

1. Complete the following amortization schedule only for the dates indicated. (Round all answers to the nearest dollar.) Use the effective-interest method.

Debit Credit Carrying Amount

Credit Cash Interest Expense Bond Discount of Bonds

October 1, 2015 $738,224

April 1, 2016

October 1, 2016

2. Prepare the adjusting entry for December 31, 2015. Use the effective-interest method.

3. Compute the interest expense to be reported in the income statement for the year ended December 31, 2016.

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