Question

1) Skysong Corporation issued $620,000 of 9% bonds on November 1, 2017, for $656,123. The bonds were dated November 1, 2017, and mature in 8 years, with interest payable each May 1 and November 1. Skysong uses the effective-interest method with an effective rate of 8%.

Prepare Skysong’s December 31, 2017, adjusting entry.

2)On January 1, 2017, Skysong Corporation issued $450,000 of 7% bonds, due in 8 years. The bonds were issued for $478,264, and pay interest each July 1 and January 1. The effective-interest rate is 6%.

Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Skysong uses the effective-interest method.

Answer 1

ANSWER

(1)

Date	General Journal	Debit	Credit
December 31, 2017	Interest expense (656,123*8%*2/12)	8,748
	Premium on bonds payable	552
	Interest payable (620,000 *9%*2/12)		9,300

(2)

a	Jan 1	Cash	478,264
		Bonds payable		450,000
		Premium on Bonds payable		28,264
b	Jul-1	Interest expense	14,347		=478,264*6%/2
		Premium on Bonds payable	1,403
		Cash		15,750	=450,000 *7%/2
c	Dec-31	Interest expense	14,305		=(478,264-1,403)*6%/2
		Premium on Bonds payable	1,445
		Interest payable		15,750	=450,000 *7%/2

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