Question

Exercise 14-7 On January 1, 2017, Vaughn Corporation issued $620,000 of 9% bonds, due in 8...

Exercise 14-7

On January 1, 2017, Vaughn Corporation issued $620,000 of 9% bonds, due in 8 years. The bonds were issued for $656,123, 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. Vaughn uses the effective-interest method.

Homework Answers

Answer #1
Journal Entry
Date Transaction Debit Credit
1-Jan-17 Cash $656,123
To Premium on Bond $36,123
To Bonds Payable $620,000
1-Jul-17 Interest Expense $26,244.92 (656123*4%)
Premium on Bonds Payable $1,655.08
To Cash $27,900.0 (620000*4.5%)
31-Dec Interest Expense $26,178.72 (656123-1655.08)*4%
Premium on Bonds Payable $1,721.28
To Interest Payable $27,900.0 (620000*4.5%)
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