Post the following journal entry: On 7/1/14, ABC sold 12% bonds having a maturity value of...

Post the following journal entry: On 7/1/14, ABC sold 12% bonds having a maturity value of $800,000 for $861,771, resulting in an effective yield of 10%. The bonds are
dated 7/1/14, and mature 7/1/19. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of
amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/14.
Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense.

Expert Solution

All working forms part of the answer
Answer: Journal entry on 31 Dec 2014

Date	Accounts title	Debit	Credit
31-Dec-14	Interest Expense	$ 43,088.55
	Premium on Bonds Payable	$ 4,911.45
	Interest Payable		$ 48,000.00
	(6 months semi annual Interest accrued)

Working for above: Partial Amortisation schedule

Period	Cash Interest	Interest Expense	Premium Amortised	Unamortised Premium	Carrying Value
01-Jul-14				$ 61,771.00	$ 861,771.00
01-Jan-15	$ 48,000.00 [800000x12%x6/12]	$ 43,088.55 [861771 x 10% x 6/12]	$ 4,911.45 [48000 – 43088.55]	$ 56,859.55 [61771 – 4911.45]	$ 856,859.55 [861771 – 4911.45]

ekkarill92 answered 2 years ago

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