Problem 1 Hyer Herb Inc. issued bonds with the following information: Bond Face

Question

Problem 1 Hyer Herb Inc. issued bonds with the following information: Bond Face Value Interest Rate Payment Frequency Term Payment Timing Issue Price 10,000 8% Annually 3 years December 31 $10,535 The bonds will be issued on January 1, 2017. Sam has decided that his company will use GAAP accounting with effective interest rate amortization. On January 1, 2017, bond investors were looking for a rate of return of 6%. a) Book the journal entry to issue the bonds on January 1, 2017 Credit DATE Account Debit b) Book the journal entry for recognizing interest on December 31, 2017. journal entry for the month relating to interest expense and amortization Debit Credit Account DATE

Explanation / Answer

a) Date Account Debit Credit 1/1/2017 cash] 10,535 premium on bonds payable 535 bonds payable 10,000 b) 12/31/2017 interest expense (10535*6%) 632 premium on bonds payable 168 cash 800 c) 12/31/2018 interest expense(10367*6%) 622 premium on bonds payable 178 cash 800 d) Balance sheet (partial) date 12/31/2018 bonds payable 10,000 Add:premium on bonds payable 189 10,189 e) 12/31/2019 Bonds payable 10,000 cash 10,000

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