Lorance Corporation issued $825,000, 9%, 10-year bonds on January 1, 2015, for $

Question

Lorance Corporation issued $825,000, 9%, 10-year bonds on January 1, 2015, for $773,593. This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Lorance uses the effective-interest method to amortize bond premium or discount. Lorance Corporation issued $825,000, 9%, 10-year bonds on January 1, 2015, for $773,593. This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Lorance uses the effective-interest method to amortize bond premium or discount. Date Account Titles and Explanation Debit Credit Jan. 1 Prepare the journal entry to record the payment of interest and the discount amortization on July amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit July 1 Prepare the journal entry to record the accrual of interest and the discount amortization on Decem Date Account Titles and Explanation Debit Credit Dec. 31

Explanation / Answer

1-Jan Cash 773593 Discount on bonds payable 51407        Bonds payable 825000 1-Jul Interest expense 38680 =773593*10%/2        Discount on bonds payable 1555        Cash 37125 =825000*9%/2 31-Dec Interest expense 38757 =(773593+1555)*10%/2        Discount on bonds payable 1632        Interest payable 37125

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