Buzz Corporation issued $600,000, 7%, 10-year bonds on January 1, 2014, for $559

Question

Buzz Corporation issued $600,000, 7%, 10-year bonds on January 1, 2014, for $559,740. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1. Buzz uses the effective-interest method to amortize bond premiums and discounts.

Prepare journal entries to record the following events(round to the nearest dollar):

a) The issuance of the bonds on January 1, 2014.

b) The accrual of interest and the discount or premium amortization on December 31, 2014.

c) The payment of interest on January 1, 2015.

d) The accrual of interest and the discount or premium amortization on December 31, 2015.

e) Determine carrying value of the bonds at January 1, 2016.

Explanation / Answer

Ans

Date Particulars Debit Credit Ans a Jan 01-14 Bank 5,59,740.00 Bond Payable 5,59,740.00 Ans b Dec 31-14 Interest Expense      44,779.20 Bond Payable        2,779.20 Interest Accrued      42,000.00 Ans c Jan 01-15 Interest Accrued      42,000.00 Bank      42,000.00 Ans d Dec 31-15 Interest Expense      45,001.54 Bond Payable        3,001.54 Interest Accrued      42,000.00 Ans e Issue Proceeds of Bond 5,59,740.00 Amotisation of Discount        5,780.74 Bond Payable as on Jan 16 5,65,520.74

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

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