Question

Teal Company issued $ 576,000 of  10%,  20-year bonds on January 1, 2017, at  102. Interest is payable semiannually...

Teal Company issued $ 576,000 of  10%,  20-year bonds on January 1, 2017, at  102. Interest is payable semiannually on July 1 and January 1. Teal Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of  9.7705%.

Prepare the journal entries to record the following. (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.)

(a) The issuance of the bonds.
(b) The payment of interest and related amortization on July 1, 2017.
(c) The accrual of interest and the related amortization on December 31, 2017.

Homework Answers

Answer #1

Journal entry

Date account and explanation debit credit
Jan 1 Cash (576000*1.02) 587520
Bonds payable 576000
Premium on bonds payable 11520
(To record bond payable)
July 1 Interest expense (587520*9.7705%*6/12) 28702
Premium on bonds payable 98
cash (576000*5%) 28800
(To record interest)
Dec 31 Interest expense (587520-98)*9.7705%*6/12 28697
Premium on bonds payable 103
Interest payable 28800
(To record interest)
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