Question

# On June 1, 2008, Angelo Bottle Company sold \$500,000 in long-term bonds for \$438,800. The bonds...

On June 1, 2008, Angelo Bottle Company sold \$500,000 in long-term bonds for \$438,800. The bonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. The bonds pay interest annually on May 31 of each year. The bonds are to be accounted for under the effective interest method.

(a)   Construct a bond amortization table for this problem to indicate the amount of interest expense and discount amortization at each May 31. Make sure all columns and rows are properly labelled. (Round to the nearest dollar.)

(b) Assuming that interest and discount amortization are recorded each May 31, prepare the adjusting entry to be made on December 31, 2010. (Round to the nearest dollar.)

 (a) Date Interest Paid (A) Int. Expenses (B) Disc. Amortization (c) Carrying amount (D) (B) = (D) x 10% (c) = (B) - (A) June 01, 2008 \$438,800 May 31, 2009 \$40,000 \$43,880 \$3,880 \$442,680 May 31, 2010 \$40,000 \$44,268 \$4,268 \$446,948 (b) Date Accounts Titles Debit Credit Dec 31, 2010 Interest Expenses \$25,823 Discount on Bonds Payable \$2,490 Interest Payable \$23,333 Working Interest Expenses \$25,823 (\$44,268 x 7/12) Discount on Bonds Payable \$2,490 (\$4,268 x 7/12)

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