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Exercise 14-9 On June 30, 2017, Pharoah Company issued $4,300,000 face value of 13%, 20-year bonds at $4,623,487, a yield of 12%. Pharoah uses the effective-interest method to amortize bond premlum or discount. The bonds pay semilannual Interest on June 30 and December 31 Prepare the journal entries to record the following transactions. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) (1) The issuance of the bonds on June 30, 2017. (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, 2018Explanation / Answer
Long term investments Bonds payable 4,300,000 add premium on bonds payable 316,831 Book value of bonds payable 4,616,831 1) interest expense reported for 2018 554,435 2) greater than 3) total cost of borrowing over the life of the bond interest paid over the life of bonds (4,300,000*13%)*20= 11180000 less premium on bonds -323487 total cost of borrowing over the life of the bond 10856513 4) same as
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