Question

On January 1, 2017, Martinez Corporation issued $650,000 of 9% bonds, due in 10 years. The bonds were issued for $609,499, and pay interest each July 1 and January 1. Martinez uses the effective-interest method.

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. Assume an effective-interest rate of 10%. (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.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	Jan. 1, 2017
(b)	Jan. 1, 2017July 1, 2017Dec. 31, 2017
(c)	Jan. 1, 2017July 1, 2017Dec. 31, 2017

Answer 1

Answer:

No.	Date	Account title and Explanation	Debit	Credit
a	Jan 1,2017	Cash	$609,499
		Discount on bonds payable	$40,501
		Bonds payable		$650,000
		[To record issuance of bonds payable]
b	July 1, 2017	Interest expense [$609,499 x 5%]	$30,475
		Cash [$650,000 x 4.5%]		$29,250
		Discount on bonds payable		$1,225
		[To record payment of first interest]
c	Dec 31,2017	Interest expense [($609,499 + $1,225) x 5%]	$30,536
		Cash [$650,000 x 4.5%]		$29,250
		Discount on bonds payable		$1,286
		[To record payment of first interest]

*Semi-annual rate of stated rate 9% is 4.5%

**Semi-annual rate of effective rate 10% is 5%