Question

Germ Co. issued $600,000, 6%, 5-year bonds to yield 8% on March 1, Year 1. Interest is paid on August 31 and February 28th. The proceeds from the bonds are $551,332. Germ's year end is 12/31

Using effective-interest amortization, record the necessary journal entries on 12/31/yr 1 and 2/28/yr 2 assuming they do NOT use adjusting entries.?

Answer 1

original Value of Bonds issued = $551,332

Gem co. book Interest @ 8% and paid @ 6%. Difference will be added to Bonds.

Payment period	Bonds value	Interest Expense book	Interest Payment	Remaining
1	551,332	22,053	18,000	555,385
2	555,385	22,215	18,000	559,601
3	559,601	22,384	18,000	563,985
4	563,985	22,559	18,000	568,544
5	568,544	22,742	18,000	573,286
6	573,286	22,931	18,000	578,217
7	578,217	23,129	18,000	583,346
8	583,346	23,334	18,000	588,680
9	588,680	23,547	18,000	594,227
10	594,227	23,769	18,000	599,996

Accounting entry:

Date	Accounts Title	Debit	Credit
12/31/yr1	Interest Expenses	14,810
	Interest Payable		14,810
	(4 months interest book @ 8%)
2/28/yr2	Interest Expense	7,405
	Interest Payable	14,810
	Cash		18,000
	Bonds		4,215