Question

Jan 1, 2017, Ky Corporation issues $4,000,000 of 10 percent, five year bonds at 92.79. Interest is paid ANNUALLY, and the effective interest rate of 12% is used for amortization.

What amount was received for the bonds?

Make Journal entries for the Jan 1 issuance of the bond and the first two interest transactions: December 31, 2017 (accrual) and Dec 31, 2018 (accrual).

Answer 1

WORKING NOTES

A	B	C	D	E	F	G
Date	Interest Payment stated 10%	effective interest rate stated 12%	amortisation(c-b)	debit in bond ac = discount (Previous e-d)	credit balance in bond payable	bv(f-e)
0				288400	4000000	3711600
1	400000	445392	45392	243008	4000000	3756992
2	400000	450839.04	50839.04	192168.96	4000000	3807831.04
3	400000	456939.7248	56939.7248	135229.2352	4000000	3864770.765
4	400000	463772.4918	63772.49178	71456.74342	4000000	3928543.257
5	400000	471425.1908	71425.19079	31.55263488	4000000	4000000

Journals...

Date	Particulars			Debit	Credit
1-Jan-17	Cash ….Dr			3711600
	Discount on Bonds Payable…Dr			288400
		To Bonds Payable			4000000
31-Dec-17	Interest Expense …Dr			445392
		To Discount on Bonds Payable			45392
		To Cash			400000
31-Dec-18	Interest Expense …dr			450839.04
		To Discount on Bonds Payable			50839
		To Cash			400000