Question

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.

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)