Exercise 14-5 Marigold Company issued $492,000 of 10%, 20-year bonds on January

Question

Exercise 14-5

Marigold Company issued $492,000 of 10%, 20-year bonds on January 1, 2017, at 102. Interest is payable semiannually on July 1 and January 1. Marigold Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.

Prepare the journal entries to record the following. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

Open Show Work

(a) The issuance of the bonds. (b) The payment of interest and related amortization on July 1, 2017. (c) The accrual of interest and the related amortization on December 31, 2017.

Explanation / Answer

Ans.

Note:- Intrest is Payable semiannually 10% annuly semiannualy is 5% and Effective yield is 9.7705% semiannually is 4.88525%

Interest Payment = Face Value x Face Rate = $492,000 x 5% = $24,600

Interest Expenses = Carring Value x Effective Rate = $501,840 x 4.88525% = $24,516

Carring Value $501,840 - $84 = $501,756

Interest Payment = Face Value x Face Rate = $492,000 x 5% = $24,600

Interest Expenses = Carring Value x Effective Rate = $501,756 x 4.88525% = $24,512

DATE ACCOUNT TITALS EXPLANATION DEBIT CREDIT 01/01/2017 Cash 501,840 To Bonds Payable 492,000 To Premium on Bonds Payable 9,840 ($492,000 x 102%) 07/01/2017 Interest Expenses 24,516 Premium on Bonds Payable 84 To Cash 24,600 31/12/2017 Interest Expenses 24,512 Premium on Bond Payable 88 To Interest Payable 24,600

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.