Question

Foreman company issued $800,000 of 10%, 20-year bonds on January 1, 2011. The market rate at 8%. Interest is payable semiannually on July 1 and January 1.

a) the issuance of the bonds.

b) the payment of interest and the related amortization on July 1, 2011.

c) The accrual of interest and related amortization on December 31, 2011.

Answer 1

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Requirement 1
Bond issue price:
		a	b	a*b
Interest	$800,000 million*5%	$                                 40,000	19.79277	$                    791,711
Principal		$                               800,000	0.20829	$                    166,631
Bond issue price				$                    958,342
Date	Account	Debit	Credit
1/1/2011	Cash	$                               958,342
	Premium on Bond Payable	$                              -158,342	$                               158,342
	Bond Payable		$                               800,000
	(To record bond issuance)
7/1/2011	Interest Expense ($958,342*4%)	$                                 38,334
	Premium on Bond payable (Plug in)	$                                    1,666
	Cash ($800,000*5%)		$                                 40,000
	(To record first interest payment entry)
12/31/2011	Interest Expense $958,342-$1,666)*4%)	$                                 38,267
	Premium on Bond payable (Plug in)	$                                    1,733
	Interest Payable ($800,000*5%)		$                                 40,000
	(To record interest accrual)