Exercise 14-9 On June 30, 2017, Pearl Company issued $5,300,000 face value of 13

Question

Exercise 14-9 On June 30, 2017, Pearl Company issued $5,300,000 face value of 13%, 20-year bonds at 5,698,716, a yield of 12%. Pearl uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31 Prepare the journal entries to record the following transactions. (Round answer to O decimal places, e.g. 38,548. If no entry is reguired, select "No Entry" for the account titles and enter 0 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, 2018 No. Date Account Titles and Explanation Debit Credit (1) June 30, 2017 Cash 5,698,716 Bonds Payable 5,300,000 Premium on Bonds Payable 398,716 (2) December 31, 2017 Interest Expense 341,923 Premium on Bonds Payable 2,577 Cash Interest Expense Premium on Bonds Payable 344,500 (3) June 30, 2018 341,768 2732 Cash 344,500 (4) December 31, 2018 Interest Expense 341,604 Premium on Bonds Payable 2,896 Cash 344,500

Explanation / Answer

Balance Sheet Presentation long term liabilities Bonds payable 5,300,000 premium on bonds payable 393,407 Book value of bonds payable 5,693,407 3) total cost of borrowing over the life of bonds interest expense paid (5,300,000*13%*20)= 13780000 less premoium on bonds payable -398,716 total cost of borrowing over the life of bonds 13381284 4) Same

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