Effective Interest Amortization On December 31, 2011, Echo, Inc., issued $800,00

Question

Effective Interest Amortization On December 31, 2011, Echo, Inc., issued $800,000 of 11%, 10-year bonds for $768,000, yielding an effective interest rate of 12%. Semiannual interest is payable on June 30 and December 31 each year. The firm uses the effective interest method to amortize the discount. Required a. Prepare an amortization schedule showing the necessary information for the first two interest periods. Round amounts to the nearest dollar. b. Prepare the journal entry for the bond issuance on December 31, 2011. c. Prepare the journal entry to record bond interest expense and discount amortization at June 30, 2012. d. Prepare the journal entry to record bond interest expense and discount amortization at December 31, 2012. a. Year Interest Period Interest Paid Interest Expense Periodic Amortization Balance of Unamortized Discount Book Value of Bonds End of Period at issue $Answer $Answer $Answer $Answer $Answer 1 1 Answer Answer Answer Answer Answer 2 Answer Answer Answer Answer Answer General Journal Date Description Debit Credit b. Dec.31 Cash Answer Answer Answer Answer Answer Answer Answer Answer To record issuance of bonds. c. Jun.30 Answer Answer Answer Answer Answer Answer Cash Answer Answer To record semiannual interest payment and discount amortization. d. Dec.31 Answer Answer Answer Answer Answer Answer Cash Answer Answer To record semiannual interest payment and discount amortization. Check

Explanation / Answer

A) Amortization Schedule year cash interest discount Carrying interest expense amortized value 5.50% 6% 1 768,000 30-Jun 44000 46080 2080 770,080 31-Dec 44,000 46205 2,205 772,285 b) Journal Entry Date Accounting titles & Explanations Debit Credit 12/31/2011 cash 768,000 discount on bonds payable 32,000 Bonds payable 800,000 c) 6/30/2012 interst expense 46,080 discount on bonds payable 2,080 cash 44,000 d) 12/31/2012 interst expense 46,205 discount on bonds payable 2,205 cash 44,000

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