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The Gorman Group issued $980,000 of 9% bonds on June 30, 2018, for $1,076,985. The bonds...

The Gorman Group issued $980,000 of 9% bonds on June 30, 2018, for $1,076,985. The bonds were dated on June 30 and mature on June 30, 2038 (20 years). The market yield for bonds of similar risk and maturity is 8%. Interest is paid semiannually on December 31 and June 30.

Complete the below table to record the company's journal entry. (Round intermediate calculations and final answers to the nearest whole dollar. Enter interest rate to 1 decimal place. (i.e. 0.123 should be entered as 12.3).)
December 31, 2018 Amount Interest Rate Total
Interest expense $1,076,985 x = $0
Cash $980,000 x = $0
Amortization of premium on bonds $0
June 30, 2019 Amount Interest Rate Total
Interest expense x =
Cash $980,000 x = $0
Amortization of premium on bonds $0

Required: Complete the below table to record the company's journal entry.

1. to 3. Prepare the journal entry to record their issuance by The Gorman Group on June 30, 2018, interest on December 31, 2018 and interest on June 30, 2019 (at the effective rate).

Solutions

Expert Solution

December 31, 2018 Amount Interest Rate Total
Interest expense $1,076,985 x 8% = 86159
Cash $980,000 x 9% = 88200
Amortization of bond premium 2041

**Carrying Value of Bond on December 31 2018 =Issue price -premium amortized

                                             = 1076985 - 2041

                                             = 1074944

June 30,2019 Amount Interest Rate Total
Interest expense 1074944 x 8% = 85996
Cash $980,000 x 9% = 88200
Amortization of bond premium 2204

1-3)

Date Account title Debit credit
30June 2018 cash 1076985
Premium on bond payable 96985
Bond payable 980000
December 31 2018 Interest expense 86159
Premium on bond payable 2041
cash 88200
30 June 2019 Interest expense 85996
Premium on bond payable 2204
cash 88200

jeff jeffy answered 6 months ago
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