Question
In: Accounting
RKO Company sold bonds with a face value of $750,000 for $806,000. The bonds have a...
RKO Company sold bonds with a face value of $750,000 for $806,000. The bonds have a coupon rate of 7 percent, mature in 10 years, and pay interest annually every December 31. All of the bonds were sold on January 1 of this year. Record the sale of the bonds on January 1 and the payment of interest on December 31 of this year, without the use of a premium account. RKO uses the effective-interest amortization method. Assume an annual market rate of interest of 6 percent.
Record the sales of the bonds on January 1. Record the payment of interest on December 31 using effective-interest amortization.
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Expert Solution
Solution:
| Journal Entries - RKO Company | ||||
| Event | Date | Particulars | Debit | Credit |
| 1 | 1-Jan | Cash Dr | $806,000.00 | |
| To Bond Payable | $806,000.00 | |||
| (To record issue of bond) | ||||
| 2 | 31-Dec | Interest expense Dr ($806,000*6%) | $48,360.00 | |
| Bond Payable Dr | $4,140.00 | |||
| To Cash ($750,000*7%) | $52,500.00 | |||
| (To record interest expense and payment using effective interest method) | ||||
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