Question

On February 1, 2021, Wolf Inc. issued 10% bonds dated February 1, 2021, with a face...

On February 1, 2021, Wolf Inc. issued 10% bonds dated February 1, 2021, with a face amount of $200,000. The bonds sold for $239,588 and mature in 20 years. The effective interest rate for these bonds was 8%. Interest is paid semiannually on July 31 and January 31. Wolf's fiscal year is the calendar year. Wolf uses the effective interest method of amortization.

Required:

1. Prepare the journal entry to record the bond issuance on February 1, 2021.

2. Prepare the entry to record interest on July 31, 2021.

3. Prepare the necessary journal entry on December 31, 2021.

4. Prepare the necessary journal entry on January 31, 2022.

Business   Accounting   
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Answer #1
General Journal Debit Credit
February 1, 2021 Cash 239588
    Bonds payable 200000
    Premium on bonds payable 39588
July 31, 2021 Interest expense 9584 =239588*8%*6/12
Premium on bonds payable 416
       Cash 10000 =200000*10%*6/12
December 31, 2021 Interest expense 7972 =(239588-416)*8%*5/12
Premium on bonds payable 361
      Interest payable 8333 =200000*10%*5/12
January 31, 2022 Interest payable 8333
Interest expense 1594 =(239588-416)*8%*1/12
Premium on bonds payable 73
      Cash 10000 =200000*10%*6/12
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