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Bats corporation issued $800,000 of 14% bonds for 849,676. The bonds were dated April 1,2018, are...

Bats corporation issued $800,000 of 14% bonds for 849,676. The bonds were dated April 1,2018, are due March 31, 2023. (5 years). and pays interest semiannually on September 30 and March 31. The market yield for bonds of similar risk and maturity was 12%. Bats fiscal year end is December 31.

Prepare the journal entries for (a) issuance of bonds and (b) September 30 and March 31 interest payments assuming the company uses the effective interest method

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Answer #1
Date Account titles & Explanations Debit Credit
a) 4/1/2018 cash 849,676
premium on bonds 49,476
Bonds payable 800,000
b) 30/1/2018 interest expense (849,676*12%*1/2) 50981
premium on bonds 5019
cash (800,000*7%) 56000
c) 3/31/2018 interest expense (849676-5019)*6% 50679
premium on bonds 5321
cash (800,000*7%) 56000
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