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In: Accounting

On October 1, 2016, Ball Company issued 6% bonds dated October 1, 2016, with a face...

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.

Solutions

Expert Solution

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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)

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