On January 1, 2010, Irik Corporation issued $1,830,700 face value, 7%, 10-year b
ID: 2346006 • Letter: O
Question
On January 1, 2010, Irik Corporation issued $1,830,700 face value, 7%, 10-year bonds at $1,707,852. This price resulted in an effective-interest rate of 8% on the bonds. Irik uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January 1.a. Prepare the journal entries to record the issuance of the bonds on January 1, 2010.
b. Prepare an amortization table through December 31, 2012 (three interest periods) for this bond issue.
c. Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2010.
d. Prepare the journal entry to record the payment of interest on January 1, 2011.
e. Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2011.
Explanation / Answer
a)
Dr. Cash 1,707,852
Discount on bonds payable 122,848
Cr. Bonds payable 1,830,700
b)
(1) = Beginning carrying value
(2) = Interest payment
(3) = Discount amoritized
(4) = Total interest expense (2) + (3)
(5) = Biginning discount
(6) = Ending discount (5) - (3)
(7) = Ending carrying value (1) + (3)
Jan.1 , 2010 (1) 1,707,852
Dec. 31, 2010 (1) 1,707,852 (2) 128,149 (3) 8,489 (4) 136,628 (5) 122,848 (6) 114,359 (7) 1,716,341
Dec. 31, 2011 (1) 1,716,341 (2) 128,149 (3) 9,158 (4) 137,307 (5) 114,359 (6) 105,201 (7) 1,725,499
Dec. 31, 2012 (1) 1,725,499 (2) 128,149 (3) 9,890 (4) 138,039 (5) 114,359 (6) 104,469 (7) 1,735,389
c)
Dr. Interest expense 136,628
Cr. Discount on bods payble 8,489
Interest payable 128,149
d)
Dr. Interest payable 128,149
Cr. Cash 128,149
e)
Dr. Interest expense 137,307
Cr. Discount on bonds payable 9,158
Interest payable 128,149
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