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Q 1 On January 1, 2014, JWS Corporation issued $704,000 of 9% bonds, due in 10 y

ID: 2465273 • Letter: Q

Question

Q 1

On January 1, 2014, JWS Corporation issued $704,000 of 9% bonds, due in 10 years. The bonds were issued for $660,134, and pay interest each July 1 and January 1. JWS uses the effective-interest method.

Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 10%. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.

Date

Account Titles and Explanation

Debit

Credit

January 1, 2014

July 1, 2014

December 31, 2014

Q 2

On January 1, 2014, JWS Corporation issued $666,000 of 9% bonds, due in 10 years. The bonds were issued for $624,501, and pay interest each July 1 and January 1. JWS uses the effective-interest method.

Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 10%. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.

Date

Account Titles and Explanation

Debit

Credit

January 1, 2014

July 1, 2014

December 31, 2014

No.

Date

Account Titles and Explanation

Debit

Credit

(a)

January 1, 2014

(b)

July 1, 2014

(c)

December 31, 2014

Explanation / Answer

Solution:

Q1

Date

account title

Debit

Credit

Jan 1,2014

Cash

660134

Disount on Bonds Payable

43866

     Bonds payable

704000

July 1,2014

Interest expense

33,007

       Disount on Bonds Payable

    1,327

        Cash

31,680

Dec 31,2014

Interest expense

33,082

       Disount on Bonds Payable

    1,402

        Cash

31,680

Bond discount=704000-660134=43686

A

B

C

D=B*5%

E=D-C

F

G

H=G-F

Date

Opening book value

Interest payment (704000*4.5%)

Interest expense

amortisatiion

Debit balance in bond discount

credit balance in bonds payable

Book balue of bonds

Jan-01

                         -  

                               -  

                       -  

                    43,686

                  704,000

                           660,134

Jul-01

   660,134

                31,680

                      33,007

                1,327

                    42,359

                  704,000

                           661,641

Dec-31

   661,641

                31,680

                      33,082

                1,402

                    40,957

                  704,000

                           663,043

Q2.

Date

account title

Debit

Credit

Jan 1,2014

Cash

624501

Disount on Bonds Payable

41499

     Bonds payable

666000

July 1,2014

Interest expense

   31,225

       Disount on Bonds Payable

     1,255

        Cash

   29,970

Dec 31,2014

Interest expense

   31,288

       Disount on Bonds Payable

     1,318

        Cash

   29,970

Bond discount=666000-624501=41499

A

B

C

D=B*5%

E=D-C

F

G

H=G-F

Date

Opening book value

Interest payment (666000*4.5%)

Interest expense

amortisatiion

Debit balance in bond discount

credit balance in bonds payable

Book balue of bonds

Jan-01

                         -  

                               -  

                       -  

                    41,499

                  666,000

                         624,501

Jul-01

   624,501

                29,970

                      31,225

                1,255

                    40,244

                  666,000

                           625,756

Dec-31

   625,756

                29,970

                      31,288

                1,318

                    38,926

                  666,000

                           627,074

Date

account title

Debit

Credit

Jan 1,2014

Cash

660134

Disount on Bonds Payable

43866

     Bonds payable

704000

July 1,2014

Interest expense

33,007

       Disount on Bonds Payable

    1,327

        Cash

31,680

Dec 31,2014

Interest expense

33,082

       Disount on Bonds Payable

    1,402

        Cash

31,680