Effective Interest Amortization On January 1, 2015, Raines, Inc., issued $250,00

Question

Effective Interest Amortization On January 1, 2015, Raines, Inc., issued $250,000 of ten percent, 15-year bonds for $293,230, yielding an effective interest rate of eight percent. 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 January 1, 2015. c. Prepare the journal entry to record the bond interest payment and discount amortization at June 30. d. Prepare the journal entry to record the bond interest payment and discount amortization at De- cember 31.

Interest Paid Balance of Unamortized Premium Book Value of Bonds End of Period Interest Periodic Amortization Interest YearPeriod at issue General Journal Date Description Debit Credit b. Jan. 1 To record issuance of bonds. C. Jun. 30 To record semiannual interest payment d. Dec. 31 To record semiannual interest payment

Explanation / Answer

balance of book a. interest interest periodic unamortized value of Year period paid amortization premium bonds 5% 4% At issue 43,230 293,230 1 12500 11729 42459 292459 2 12,500 11698 41657 291657 Date Description Debit Credit b. 1-Jan Cash 293,230 premium on bonds issue 43,230 Bonds payable 250,000 30-Jun interest expense 11,729 premium on bonds payable 771 cash 12,500 31-Dec interest expense 11,698 premium on bonds payable 802 cash 12,500

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