Koresh Corp issued $6,000.000, 10% year bonds,dated April 1, with interest payme

Question

Koresh Corp issued $6,000.000, 10% year bonds,dated April 1, with interest payment dates of Semptember 30, and ,March 31.

A Assume the bonds were issued at 96 on April 1,2015.
1 Make the journal entry for April 1,2015.
2 Make the journal entry for 9/30/15 if the straight method of amortization was being used.
3. Make the journal entry for 9/30/2015 under the effective interest method is being used.The market rate is 12%
4.Make the adjusting entry for December 31,2015(Assume the straight line method is being used)
5.Make the entry for December 31,2015.(Assume the straight line method is being used).

B. Assume the bonds above were issued at 105 on April 1,2015
1 Make the journal entry for April 1,2015
2 Make the journal for Semptember 30,2015 (if the straight line method of amortization is being used)
3.Make the journal entry for 9/30/3015 if the effective method of amortization is being used.(Assume the market rate was 6%)
4Make the adjusting entry for December 31,2015 (Assume the straight line method is being used)
5. Make the closing entry for December 31,2015(Assume the straight line method is being used)

Explanation / Answer

A- Straight line Amortization of Interest is a method that allocates Bond Interest equally throughout the life of Bond.

Assume that Bond has Life of 10 year because it is not given but it seems to be 10 year.

Discount on Issue = $60,000,00*.04= $240000

Half Yearly Interest= ($60,000,00*.10)/2 = $300000

Amortization of Discount per half year= $240000/20= $12000

B-Bond Issued at 105-

Date Account Title Debit Credit 1-Apr-15 Cash $5,760,000.00 Discount on Bond Issue $240,000.00       10% Bond Payble $6,000,000.00 Straight Line Amortization 30-Sep-15 Interest Expense $300,000.00 Amortization Expense $12,000.00        Discount on Bond Issue $12,000.00        Cash $300,000.00 31-Dec-15 Amortization Expense $6,000.00 Interest Expense $150,000.00        Discount on Bond Issue $6,000.00        Interest Payble $150,000.00 Effective Interest Method Amortization 30-Sep-15 Interest Expense $345,600.00        Discount on Bond Issue $45,600.00        Cash $300,000.00 31-Dec-15 Interest Expense $174,168.00        Discount on Bond Issue $24,168.00        Interest Payble $150,000.00

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