Question

Warner Company issued $5,000,000 of 6%, 10-year bonds on one of its interest dates for $4,318,500 to yield an effective annual rate of 8%. The effective interest method of amortization is to be used. Prepare the journal entry to record the second interest payment.

Answer 1

Worknig Notes:
		Par Value of the Bonds =	$                     50,00,000
		Issued price	$                     43,18,500
		Discount on issued	$                       6,81,500
		Coupon rate	6%
		Coupon amount =	$                       3,00,000
SOLUTION :
	Schedule of Interest revenue and bond discount Amortization
	Effective interest Method
	Date	Cash Paid	Interest Expenses @ 8% on Carrying amount	Discount for Amortization	Caryying Amount
	Issue Date				$       43,18,500
	Year 1	$                                                                3,00,000	$                       3,45,480	$          45,480.00	$       43,63,980
	Year 2	$                                                                3,00,000	$                       3,49,118	$                49,118	$       44,13,098
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Year 2	Interest Expenses	$                       3,49,118
		Cash		$             3,00,000
		Discount on Issuance of Bonds		$                49,118
		(To record the interest expenses of year 2)