Question

On January 1, 2018, the San Marcos Company issues, $300,000 of 8% bonds due in 10...

On January 1, 2018, the San Marcos Company issues, $300,000 of 8% bonds due in 10 years. These were issued for $280,488 to yield a 9% rate.

Instructions

1. Prepare a bond interest expense and discount amortization schedule using the effective interest method for the first two years of the life of the bond.

2. Prepare a bond interest expense and discount amortization schedule assuming the company followed the straight-line method of discount amortization first two years of the life of the bond.

3. Prepare the journal entries to record interest expense using both the effective interest and straight line methods of bond discount amortization for the interest payment date of July 1, 2018 and for year-end December 31, 2018. Show the interest payment on January 1, 2019.

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Answer #1

1. The following is the bond interest expense and discount amortization schedule using the effective interest method for the first two years of the life of the bond:

2. The following is the bond interest expense and discount amortization schedule assuming the company followed the straight-line method of discount amortization first two years of the life of the bond:

3.

The following are the journal entries to record interest expense using effective interest method:

The following are the journal entries to record the interest expense using the straight line method:

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