On June 30, 2014, Mischa Auer Company issued $4,024,000 face value of 13%, 19-ye

Question

On June 30, 2014, Mischa Auer Company issued $4,024,000 face value of 13%, 19-year bonds at $4,322,707, a yield of 12%. Auer uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31 (a) Prepare the journal entries to record the following transactions. (Round answers 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.) (1) The issuance of the bonds on June 30, 2014 (2) The payment of interest and the amortization of the premium on December 31, 2014 (3) The payment of interest and the amortization of the premium on June 30, 2015 (4) The payment of interest and the amortization of the premium on December 31, 2015

Explanation / Answer

a.

1. entry for issuance of bond: Bank A/c Dr. $4322704

To Premium on issue of bond A/c $298707

To 13% Bond A/c $4024000

2.on 31.12.2014 : Interest A/c Dr. $259362

Premium on issue of Bond A/c Dr. $2198

To Bank A/c $261560

3. on 30.6.2015    Interest A/c Dr. $259231

Premium on issue of Bond A/c Dr. $2329

To Bank A/c $261560

4. on 31.12.2015 Interest A/c Dr. $259091

Premium on issue of Bond A/c Dr. $2469

To Bank A/c $261560

b. balance sheet presentation:

Non current liability

Bond payable $4024000

Premium payable $291711

Total bond payable $4315711

c.

1. amount of interest expense for 2015:

$2329+$2469= $4798

2.greater

3. cost of borrowing is $9640573

4.greater

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