On January 1, 2014, Oaken Furniture Co. issued $700,000 of 10% bonds and receive

Question

On January 1, 2014, Oaken Furniture Co. issued $700,000 of 10% bonds and received cash totaling $795,141. Interest is payable semiannually on January 1 and July 1. The maturity date on these bonds is January 1, 2024. The firm uses the effective –interest method of amortizing discounts and premiums. The bonds were sold to yield an effective interest rate of 8%. Oaken Furniture Co. is a calendar-year corporation. 1) Prepare an amortization table through the first two periods (7/1/14 & 1/1/15) using the effective interest method. 2) Prepare the journal entries to record bond related transacations as of the following dates: a) January 1, 2014 b) July 1, 2014 c) December 31,2014

Explanation / Answer

Amortisation table

Journal entries

Date interest expense @5% interest Amortisation Carrying value Jan 1,2014 795,141 July 1,2014 35,000 31,806 3,194 791,947 Jan 1,2015 35,000 31,678 3,322 788,625

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