Question

On January 1, 2020, Novak Corporation issued $570,000 of 9% bonds, due in 8 years. The bonds were issued for $603,210, and pay interest each July 1 and January 1. The effective-interest rate is 8%. 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. Novak uses the effective-interest method. (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) (b) (c)

Answer 1

Ans:

Issue Price of Bonds: $603,210

Face value 9% bonds : $570,000

Premium on Issue : $603,210 - $570,000= $33,210

Effective Rate : 8%

	General Journal	Debit	Credit
a.	Cash	603210
	9% Bonds		570000
	Premium on Issue of bonds (To report the issue of bonds on premium)		33210
b.	Interest on Bonds Paybale	25650
	Cash (To report the payment of Interest @9% on $570,000 for 6 months)		25650
c.	Interest Expense	48259
	Premium Amortisation	3041
	Interest on Bonds Payable (To report the interest expense and premium amortisation and crediting the interest payable for the year)		51300
Additional Payment entry if requied	Interest on Bonds Payable	25650
	Cash (To report the payment of interest on december 31)		25650

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