On July 1, 2010, Atwater Corporation issued $1,681,700 face value, 9%, 10-year b
ID: 2346566 • Letter: O
Question
On July 1, 2010, Atwater Corporation issued $1,681,700 face value, 9%, 10-year bonds at $1,920,720. This price resulted in an effective-interest rate of 7% on the bonds. Atwater uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest July 1 and January 1.Instructions
(Round all computations to 0 decimal places, e.g. 125. Use rounded amounts for future computations.)
Prepare an amortization table through December 31, 2011 (3 interest periods) for this bond issue.
Semiannual Interest Periods/ Interest to Be Paid/ Interest Expense/ Premium Amortization/ Unamortized Premium/ Bond Carrying Value
Issue Date
1
2
3
Explanation / Answer
Prepare the journal entry to record the issuance of the bonds on July 1, 2010. Date Account/Description Debit Credit July 1 Cash 2271813 Bonds payable 2000000 Premium on bonds payable 271813 Prepare an amortization table through December 31, 2011 (3 interest periods) for this bond issue. 271813 2,271,813 1 100000 90873 9127 262,686 2,262,686 2 100000 90507 9493 253193 2,253,193 3 100000 90,128 9872 243321 2,243,321 Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2010. Date Account/Description Debit Credit Dec. 31 Bond interest expense 90873 Premium on bonds payable 9127 Bond interest payable 100000 Prepare the journal entry to record the payment of interest and the amortization of the premium on July 1, 2011, assuming no accrual of interest on June 30. Date Account/Description Debit Credit July 1 Bond interest expense 90507 Premium on bonds payable 9493 100000 Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2011. Date Account/Description Debit Credit Dec. 31 Bond interest expense 90128 Premium on bonds payable 9872 Bond interest payable 100000
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