Pearl Corporation issued $630,000 of 9% bonds on November 1, 2017, for $672,812.

Question

Pearl Corporation issued $630,000 of 9% bonds on November 1, 2017, for $672,812. The bonds were dated November 1, 2017, and mature in 10 years, with interest payable each May 1 and November 1. Pearl uses the effective-interest method with an effective rate of 8%.

Prepare Pearl’s December 31, 2017, adjusting entry. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548. If no entry is required, 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.)

Date

Account Titles and Explanation

Debit

Credit

December 31, 2017

Date

Account Titles and Explanation

Debit

Credit

December 31, 2017

Explanation / Answer

The interest payment date is may 1 and Nov 1.

But since pearl uses effective interest rate method, there would be interest payable recorded on 31 Dec

Interest Payable on 31 Dec = 0.09*630000*2/12

= 9450

So,

Journal entry:

Interest Expense = 9450 (Debit)

Interest Payable = 9450 (Credit)

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.