Effective Interest Method On March 1, 2014, Minnow Corporation issued $600,000 o
ID: 2423567 • Letter: E
Question
Effective Interest Method
On March 1, 2014, Minnow Corporation issued $600,000 of 10 percent, five-year bonds. The semiannual interest payment dates are February 28 and August 31. Because the market rate for similar investments was 11 percent, the bonds had to be issued at a discount. The discount on the issuance of the bonds was $24,335. The company's fiscal year ends February 28.
Prepare entries in journal form to record the bond issue on March 1, 2014, the payment of interest, and the amortization of the discount on August 31, 2014 and on February 28, 2015. Use the effective interest method. Round your answers to the nearest dollar. If an amount box does not require an entry, leave it blank.
Explanation / Answer
Prepare Journal entries:
Semi annual interest paid:
Semi annual interest paid:
The following Effective interest amortization table is used for the above calculations:
Date Account title and Explanation Debit Credit Mar 12014 Cash $ 575,665 Discount on Bonds payable $ 24,335 Bonds Payable $ 600,000 (Bonds issued at discount)
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