Berol corporation sold 20 year bonds on January 1,2010. The face value of the bo

Question

Berol corporation sold 20 year bonds on January 1,2010. The face value of the bonds was 100,000 dollars, and they carry a 9% stated rate of interest, which is paid on December 31 of every year. Berol received 91,526 dollars in return for the issuance of the bonds when the market rate was 10%. Any premium or discount is amortized using the effective interest Method.

1. Prepare the journal entry to record the sale of the bonds on jan 1,2010 and the proper balance sheet presentation on this date.

2. Prepare the journal entry to record interest expense on December 31,2010 and the proper balance sheet presentation on this date.

Thanks!

Explanation / Answer

interest expensefor 2010 undereffective ratemethod: 91,526 x 10% = 9,152.60
actual cash paid: 9,000 (100,000 x 9%)

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