Lorance Corporation issued $831,000, 9%, 10-year bonds on January 1, 2015, for $

Question

Lorance Corporation issued $831,000, 9%, 10-year bonds on January 1, 2015, for $779,220. 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.

Part A

Prepare the journal entry to record the issuance of the bonds.

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

Part C

Prepare the journal entry to record the accrual of interest and the discount amortization on December 31, 2015

Explanation / Answer

Solution:

(A). Journal Entry:

Cash 8,31,000

   Bonds Payable 8,31,000

   ( To record Bond Issue)

(B). Journal Entry:

Cash 8,31,000

Bonds Payable 7,56,210

Premium on Bonds Payable 74,790

(B).

Cash 8,31,000

Interest Expencess 83,100

Bonds Payable 7,47,900

(C).

Interest Expencess 83,100

Premium on Bonds Payable 74,790

Cash 1,57,890   

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