Q17SE_2 - Horngren'S Financial And Managerial Accounting

Question

Using the effective-interest amortization method

On December 31, 2018, when the market interest rate is 6%, Benson Realty issues

\(700,000 of 6.25%, 10-year bonds payable. The bonds pay interest semiannually. Benson

Realty received \)713,234 in cash at issuance.

Requirements

1. Prepare an amortization table using the effective interest amortization method for

the first two semiannual interest periods. (Round to the nearest dollar.)

2. Using the amortization table prepared in Requirement 1, journalize issuance of the

bonds and the first two interest payments.

Step-by-Step Solution

Answer

The cash account is debited with $713,234, and the payable bond account is credited with $713,234.

Step 1: Definition of journal entry

The journal entry is the record maintain on daily basis to show the financial transactions or events of the company.

Step 2: Journal entries and the payment of interest

Date	Particulars	Debit	Credit
December 31, 2018	Cash	$713,234
	6% Bonds Payable		$713,234
	(Being issue entry of the bonds)
June 30, 2019	Interest Expense	$21,398
	Premium on Bonds	$477
	Cash		$21,875
	(Being entry for the payment of interest)
December 31, 2019	Interest Expense	$21,411
	Discount on Bonds	$464
	Cash		$21,875
	(Being entry for the payment of interest)