Slink Corporation issued $450,000, 7%, 10-year bonds on January 1, 2014, for $48
ID: 2450506 • Letter: S
Question
Slink Corporation issued $450,000, 7%, 10-year bonds on January 1, 2014, for $483,120. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable annually on January 1. Slink uses the effective-interest method to amortize bond premiums and discounts.
Prepare journal entries to record the following events (round to nearest dollar):
a) The issuance of the bonds on January 1, 2014.
b) The accrual of interest and the discount or premium amortization on December 31, 2014.
c) The payment of interest on January 1, 2015.
d) The accrual of interest and the discount or premium amortization on December 31, 2015.
e) Determine carrying value of the bonds at January 1, 2016.
Explanation / Answer
Slink Corporation Bond face value 450,000 Bond issue price 483,120 Premium On issue 33,120 Annual Interest Payable 315,000 Date Interest payable @7% Int expense @6% Prem Amort Dr Prem A/c Cr Bond Payable Cr Book Value Bond Jan 1.2014. 33,120 450,000 483,120 Dec 31.2014 31,500 28,987.20 2,512.80 30,607.20 450,000 480,607 Dec 31.2015 31,500 28,836.43 2,663.57 27,943.63 450,000 477,944 Journal Entry Date Account title Dr $ CR$ a Jan 1.2014. Bond Payable 450,000.00 Bond Payable Premium 33,120.00 Cash 483,120.00 b Dec 31.2014 Accrued Interest Payable 31,500.00 Interest Expense 28,987.20 Bond Payable Premium 2,512.80 c Jan 1. 2015. Cash 31,500.00 Accrued Interest Payable 31,500.00 d Dec 31.2015 Accrued Interest Payable 31,500.00 Interest Expense 28,836.43 Bond Payable Premium 2,663.57 e As per the amortization table the carrying value of bonds on Jan 1. 2016 will be = $ 477,944
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