Murphy Corporation had the following bond transactions during the fiscal year 20

Question

Murphy Corporation had the following bond transactions during the fiscal year 2014:

On January 1: issued ten $1,000 bonds at 102. The 5-year bonds are dated January 1, 2014. The contract interest rate is 6%. Straight-line amortization method is used. Interest is payable semi-annual on January 1 and July 1.

On July 1: Murphy Corporation issued $500,000 of 10%, 10-year bonds. The bonds dated January 1, 2014 were issued at 88.5, and pay interest on July 1 and January 1. Effective interest rate for these bonds is 12%. Straight-line amortization method is used.

On October 1: issued 10-year bonds $10,000 face value bonds, for $10,853 cash. The bonds have a stated rate of 9%, but an effective rate of 6%. Straight-line amortization method is used. Interest is payable on October 1 and April 1.

Requirements: Prepare all general journal entries for the three bonds issued and any interest accruals and payments for the fiscal year 2014. (Round all calculations to nearest whole dollar.)

Hint (think premiums and discounts)

Explanation / Answer

Debit Credit Jan 1 2014 Bank 10200 6% Bonds Payable 10000 Premium on Bonds issue 6% 200 (Being 10 6% bonds of $1000 FV issued at 102%) Jul 1 2014 Bank 442500 Discount on issue of bond 57500 10% Bonds payable 500000 (Being 10% bonds issued at 88.5%) Jul 1 2014 Interest Expense 280 Premium on Bonds issue 20 Bank 300 (Being interset for half year paid and premium amortised) Oct 1 2014 Cash 10853 9% Bonds Payable 10000 Premium on Bonds issue 9% 853 (Being 9% bonds issued at 10853) Dec 31 2014 Interest Expense 28179 Discount on issue of bond 2875 Interest Payable 6% bond 300 Interest Payable 10% bond 25000 Interest Payable 9% bond 225 Premium on Bonds issue 6% 200 Premium on Bonds issue 9% 21 (Being interest accrued for bonds and premium and discount amortised appropriately

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