HoustonCompany authorized a $1,000,000, 10-year, 7% bond issuedated January 1, 2

Question

HoustonCompany authorized a $1,000,000, 10-year, 7% bond issuedated January 1, 2009, with annual interests to be paid eachDecember 31. The market rate was 9% and the bonds were issued(sold) for $871,639. The company prepares financial statementannually on December 31.

(a)

Give the entry to record the sale of the bonds.

(b)

Give the journal entry to record interest expense usingeffective-interest amortization on December 31, 2009:

(a)

Give the entry to record the sale of the bonds.

(b)

Give the journal entry to record interest expense usingeffective-interest amortization on December 31, 2009:

Explanation / Answer

(a) Dr. Cash $871,639 Dr. Discount on Bonds Payable 128,361 Cr. Bonds Payable $1,000,000

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