In: Accounting
On October 1, 2016, Ball Company issued 6% bonds dated October 1, 2016, with a face amount of $210,000. The bonds mature in 9 years. Interest is paid semiannually on March 31 and September 30. The proceeds from the bond issuance were $218,888.62 to yield 5.40%. Ball Company has a December 31 fiscal year-end and does not use reversing entries.
Required:
1. | Prepare journal entries to record the issuance of the bonds and the interest payments for 2016 and 2017 using the effective interest method. |
2. | Prepare journal entries to record the issuance of the bonds and the interest payments for 2016 and 2017 using the straight-line method. |
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Part 1 | ||||
Date | Account | Debit | Credit | |
Oct 1 2016 | Cash | $218,888.62 | ||
Premium on Bond Payable | $ 8,888.62 | |||
Bond Payable | $210,000.00 | |||
(to record issuance of bond) | ||||
Dec 31 2016 | Interest Expense ($218,888.62*5.6%*3/12) | $ 2,955.00 | ||
Premium on Bond Payable | $ 195.00 | |||
Interest Payable ($210,000*6%*3/12) | $ 3,150.00 | |||
(to record interest accrued for three months) | ||||
Mar 31 2017 | Interest Expense ($218,888.62*5.6%*3/12) | $ 2,955.00 | ||
Interest Payable | $ 3,150.00 | |||
Premium on Bond Payable | $ 195.00 | |||
Cash ($210,000*6%*6/12) | $ 6,300.00 | |||
(to record interest expense) | ||||
Sep 30 2017 | Interest Expense ($218,888.62-390)*5.6%*6/12 | $ 5,899.46 | ||
Premium on Bond Payable | $ 400.54 | |||
Cash ($210,000*6%*6/12) | $ 6,300.00 | |||
(to record interest expense) | ||||
Dec 31 2017 | Interest Expense ($218,888.62-390-400.54)*5.6%*3/12 | $ 2,944.32 | ||
Premium on Bond Payable | $ 205.68 | |||
Interest Payable ($210,000*6%*3/12) | $ 3,150.00 | |||
(to record interest accrued for three months) | ||||
Part 2 | ||||
Date | Account | Debit | Credit | |
Oct 1 2016 | Cash | $218,888.62 | ||
Premium on Bond Payable | $ 8,888.62 | |||
Bond Payable | $210,000.00 | |||
(to record issuance of bond) | ||||
Dec 31 2016 | Interest Expense | $ 2,903.09 | ||
Premium on Bond Payable ($8,888.62/9 Year*3/12) | $ 246.91 | |||
Interest Payable ($210,000*6%*3/12) | $ 3,150.00 | |||
(to record interest accrued for three months) | ||||
Mar 31 2017 | Interest Expense ($218,888.62*5.6%*3/12) | $ 2,903.09 | ||
Interest Payable | $ 3,150.00 | |||
Premium on Bond Payable ($8,888.62/9 Year*3/12) | $ 246.91 | |||
Cash ($210,000*6%*6/12) | $ 6,300.00 | |||
(to record interest expense) | ||||
Sep 30 2017 | Interest Expense | $ 5,806.19 | ||
Premium on Bond Payable ($8,888.62/9 Year*6/12) | $ 493.81 | |||
Cash ($210,000*6%*6/12) | $ 6,300.00 | |||
(to record interest expense) | ||||
Dec 31 2017 | Interest Expense | $ 2,903.09 | ||
Premium on Bond Payable ($8,888.62/9 Year*3/12) | $ 246.91 | |||
Interest Payable ($210,000*6%*3/12) | $ 3,150.00 | |||
(to record interest accrued for three months) |