Problem 10-6A On July 1, 2015, Flanagin Corporation issued $1,755,900, 10%, 10-y

Question

Problem 10-6A

On July 1, 2015, Flanagin Corporation issued $1,755,900, 10%, 10-year bonds at $1,994,538. This price resulted in an effective-interest rate of 8% on the bonds. Flanagin uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest July 1 and January 1.

A. Prepare the journal entry to record the issuance of the bonds on July 1, 2015.

B. Prepare an amortization table through December 31, 2016 (3 interest periods), for this bond issue.

C. Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2015.

D. Prepare the journal entry to record the payment of interest and the amortization of the premium on July 1, 2016, assuming no accrual of interest on June 30.

E. Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2016.

Explanation / Answer

A. Journal

B. Amortisation Schedule

Interest Expense

Previous BV in G x 4%

Amortisation of bond

= B - C

C, D and E. Journal

2015 July 1 Bank 1994538        10% Bonds Payable 1755900         Premium on issue 238638

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