In: Accounting
On January 1, 2020, Perfection Company issued $400,000 of 10%, 6-year bonds dated January 1, 2020, with interest payments every June 30 and December 31. The bonds were issued at $382,762 when the market rate was 11%. Perfection Company amortizes any premium or discount using the EFFECTIVE-INTEREST-RATE method. Round all numbers to the nearest whole number.
1-Using proper formatting (eliminating the date), prepare the journal entry on January 1, 2020 to record the issuance of the bonds.
2-Using proper formatting (eliminating the date), prepare the journal entry on June 30, 2020 to record the first interest payment
3-Determine the amount of interest expense that will be recorded on December 31, 2020. Show your work for full credit and clearly label your answer.
4-Determine the amount of total interest expense that Perfection Company will recognize over the life of the bonds if the bonds are not redeemed until maturity. Show your work for full credit and clearly label your answer. ( IS THE ANSWER FOR THIS PART IS THIS
20,000x12= 240,000
+ 17,238= 257,238 OR 17,238 AND WHY )
5. Determine the amount of interest expense Perfection Company would have recorded on June 30, 2020 (first interest payment) if they had used the STRAIGHT-LINE METHOD to amortize any premium or discount, instead of the effective-interest-rate method, as described above. Show your work for full credit and clearly label your answer.
Answers.
Interest expense is $257238 because interest expense includes interest payments plus amortization of bond discount every year which is $17238(400000-382762)