Question

Brief Exercise 14-7

On January 1, 2017, Splish Corporation issued $590,000 of 9% bonds, due in 8 years. The bonds were issued for $624,376, and pay interest each July 1 and January 1. The effective-interest rate is 8%.

Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Splish uses the effective-interest method. (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.)

Answer 1

Journal entry :

Date	accounts & explanation	debit	credit
2017, Jan 1	Cash	624376
	Bonds payable		590000
	Premium on bonds payable		34376
	(To record issue bonds payable)
2017, July 1	Interest expenses (624376*4%)	24975
	Premium on bonds payable	1575
	Cash (590000*4.5%)		26550
	(To record interest paid)
2017, Dec 31	Interest expenses (624376-1575)*4%	24912
	Premium on bonds payable	1638
	Interest payable		26550
	(To record accured interest)