Question

1) K Company  issued $672,000 of 11%, 20-year bonds on January 1, 2017, at 102. Interest is payable semiannually on July 1 and January 1. K Company uses the straight-line method of amortization for bond premium or discount.

Prepare journal entries for the following:

a) The issuance of the bonds.

b) The payment of interest and the related amortization on July 1,2017.

c) The accrual of interest and the related amortization on December 31, 2017.

2) Coronado Co. sold $1,930,000 of 12%, 10-year bonds at 106 on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on July 1 and January 1. If Coronado uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2017, and December 31, 2017.  

Interest expense to be recorded is ?

3) Whispering Inc. issued $610,000 of 9%, 10-year bonds on June 30, 2017, for $505,047. This price provided a yield of 12% on the bonds. Interest is payable semiannually on December 31 and June 30. If Whispering uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2017.

Interest expense to be recorded is ?

Answer 1

1) Journal entries

Date	account and explanation	debit	credit
Jan 1	Cash (672000*1.02)	685440
	Bonds payable		672000
	Premium on bonds payable		13440
	(To record bond issue)
July 1	Interest expense	36624
	Premium on bonds payable (13440/40)	336
	Cash (672000*5.5%)		36960
	(To record interest)
Dec 31	Interest expense	36624
	Premium on bonds payable	336
	Interest payable		36960
	(To record interest)

2) Premium on bonds payable = 1930000*6% = 115800

Interest expense to be recorded = (1930000*12%*6/12)-(115800/20) = $110010

3) Interest expense to be recorded = 505047*12%*4/12 = $20201.88