LRNA Company issued $300,000, 11%, 10-year bonds on January 1, 2015, for $318 69

Question

LRNA Company issued $300,000, 11%, 10-year bonds on January 1, 2015, for $318 694. This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. LRNA uses the effective-interest method to amortize bond premium or discount. Instructions Prepare the journal entries to record the following. (Round to the nearest dollar.) The issuance of the bonds. The payment of interest and the premium amortization on July 1, 2015, assuming that interest was not accrued on June 30. The accrual of interest and the premium amortization on December 31, 2015.

Explanation / Answer

Solution:

Journal Entries:

Working Note:

June 30:

Interest Expense = 318,694 * 10% * 1/2 = 15,934.70

Premium on Bonds Payable = (300,000 * 11% * 1/2) - 15,934.70 = 565.30

Dec 31:

Interest Expense = (318,694 - 565.30) * 10% * 1/2 = 15,906.44

Premium on Bonds Payable = (300,000 * 11% * 1/2) - 15,906.44 = 593.56

Date General Journal Debit Credit 1-Jan Cash 318,694 Bonds Payable 300,000 Premium on Bonds Payable 18,694 30-Jun Interest Expense 15,934.70 Premium on Bonds Payable 565.30 Cash 16,500 31-Dec Interest Expense 15,906.44 Premium on Bonds Payable 593.56 Cash 16,500

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.