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ID: 2451388 • Letter: W
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Interest
Periods
Interest to
Be Paid
Interest Expense
to Be Recorded
Discount
Amortization
Unamortized
Discount
Bond
Carrying Value
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Date
Account Titles and Explanation
Debit
Credit
Jan. 1, 2014
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Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2014
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Date
Account Titles and Explanation
Debit
Credit
Jan. 1, 2015
Cole Corporation issued $405,000, 7%, 22-year bonds on January 1, 2014, for $363,686. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1. Cole uses the effective-interest method to amortize bond premium or discount.Warning
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Explanation / Answer
Bond Value = $405000
Issue value = $363686
Discount on issue = 405000-363686 = $41314
The nominal difference of 5.37 is due to rounding off by excel
Journal entry for issue
December 31 2014 entry
Journal entry on Jan 1 2015
Interest Period Interest to be paid Interest to be recorded Discount amortisation Unamortised discount Bond Issue value Bond Carryiing Value 0 41314.00 405000.00 363686.00 1 28350 29094.88 744.88 40569.12 405000.00 364430.88 2 28350 29154.47 804.47 39764.65 405000.00 365235.35 3 28350 29218.83 868.83 38895.82 405000.00 366104.18 4 28350 29288.33 938.33 37957.49 405000.00 367042.51 5 28350 29363.40 1013.40 36944.09 405000.00 368055.91 6 28350 29444.47 1094.47 35849.61 405000.00 369150.39 7 28350 29532.03 1182.03 34667.58 405000.00 370332.42 8 28350 29626.59 1276.59 33390.99 405000.00 371609.01 9 28350 29728.72 1378.72 32012.27 405000.00 372987.73 10 28350 29839.02 1489.02 30523.25 405000.00 374476.75 11 28350 29958.14 1608.14 28915.11 405000.00 376084.89 12 28350 30086.79 1736.79 27178.32 405000.00 377821.68 13 28350 30225.73 1875.73 25302.58 405000.00 379697.42 14 28350 30375.79 2025.79 23276.79 405000.00 381723.21 15 28350 30537.86 2187.86 21088.93 405000.00 383911.07 16 28350 30712.89 2362.89 18726.05 405000.00 386273.95 17 28350 30901.92 2551.92 16174.13 405000.00 388825.87 18 28350 31106.07 2756.07 13418.06 405000.00 391581.94 19 28350 31326.56 2976.56 10441.51 405000.00 394558.49 20 28350 31564.68 3214.68 7226.83 405000.00 397773.17 21 28350 31821.85 3471.85 3754.97 405000.00 401245.03 22 28350 32099.60 3749.60 5.37 405000.00 404994.63Related Questions
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