On June 30, 2017, Flounder Company issued $3,800,000 face value of 13%, 20-year
ID: 2567487 • Letter: O
Question
On June 30, 2017, Flounder Company issued $3,800,000 face value of 13%, 20-year bonds at $4,085,872, a yield of 12%. Flounder uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.
2)The payment of interest and the amortization of the premium on December 31, 2017.
(3)The payment of interest and the amortization of the premium on June 30, 2018.
(4)The payment of interest and the amortization of the premium on December 31, 2018.
Explanation / Answer
Amortization Schedule year Cash interest premium Carrying interest expense amortized value 6.50% 6% 6/30/2017 4,085,872 12/31/2017 247000 245152 1848 4084024 6/30/2018 247,000 245041 1959 4082066 12/31/2018 247,000 244924 2076 4079990 Journal Entries Date Account titles & Explanations Debit Credit 12/31/2017 interest expense 245,152 premium on bonds payable 1,848 Cash 247,000 6/30/2018 interest expense 245,041 premium on bonds payable 1,959 Cash 247,000 12/31/2018 interest expense 244,924 premium on bonds payable 2,076 Cash 247,000
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