Question

On January 1, 2017, Blue Company issued $1,810,000 face value, 7%, 10-year bonds at $1,943,218. This price resulted in a 6% effective-interest rate on the bonds. Blue uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1.

A. Prepare the journal entries to record the following transactions. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

1.		The issuance of the bonds on January 1, 2017.
2.		Accrual of interest and amortization of the premium on December 31, 2017.
3.		The payment of interest on January 1, 2018.
4.		Accrual of interest and amortization of the premium on December 31, 2018.

B. Show the proper long-term liabilities balance sheet presentation for the liability for bonds payable at December 31, 2018. (Round answers to 0 decimal places, e.g. 125.)

C. Provide the answers to the following questions.

1. What amount of interest expense is reported for 2018? (Round answer to 0 decimal places, e.g. 125.)

Interest expense to be reported

$ enter Interest expense in dollars

2. The bond interest expense reported in 2018 would be (select an option: greater than, less than, same as) the amount that would be reported if the straight-line method of amortization were used.

Answer 1

		interest	interest	premium	Carrying
		paid	expense	amortised	value
	6/30/2107				1,943,218
	12/31/2017	126700	116593	10107	1933111
	12/31/2018	126700	115987	10713	1922398
No	Date	Account titles & Explanations				Debit	Credit
1)	1/1/2017	Cash				1,943,218
		premium on bonds					133,218
		bonds payable					1,810,000
2)	12/31/2017	interest expense				116593
		premium on bonds				10107
		interest payable					126700
	1/1/2018	interest payable				126700
		cash					126700
3)	12/31/2018	interest expense				115987
		premium on bonds				10713
		Cash					126700
b)	Balance sheet (partial)
	As on December 31,2018
	long term liabilities
	bonds payable				1,810,000
	Add :premium on bonds				112,398	1,922,398
c)	interest expense reported for 2018				115987
	less under straight line method
	greater