Question

Lorance Corporation issued $845,000, 9%, 10-year bonds on January 1, 2015, for $792,347. This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Lorance uses the effective-interest method to amortize bond premium or discount.

1)Prepare the journal entry to record the issuance of the bonds. 2)Prepare the journal entry to record the payment of interest and the discount amortization on July 1, 2015, assuming that interest was not accrued on June 30 3)Prepare the journal entry to record the accrual of interest and the discount amortization on December 31, 2015
Date	Account Titles and Explanation	Debit	Credit

Answer 1

	Account	Debit	Credit
1…	Cash	792,347.00
	Discount on bonds payable	52,653.00
	Bonds payable		845,000.00
2…	Interest expense	39,617.35
	Discount on bonds payable		1,592.35
	Cash		38,025.00
3…	Interest expense	39,696.97
	Discount on bonds payable		1,671.97
	Cash		38,025.00

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