I need Accounting help please Bonds Issued at a Premium (Effective Interest) Coo

Question

I need Accounting help please

Bonds Issued at a Premium (Effective Interest) Cookie Dough Corporation issued $850,000 in 9%, 10-year bonds (payable on December 31, 2024) on December 31, 2014, for $907,759. Interest is paid on June 30 and December 31. The market rate of interest is 8%. Prepare the journal entries for December 31, 2016 and 2017. If an amount box does not require an entry, leave it blank. If required, round your answers to the nearest whole dollar. Journal Account and Explanation Dec 31, 2016 Dec 31, 2017

Explanation / Answer

Bonds book value at the start = $907759 Premium on bond $57759 is to be amortised to Interest exp.over life of the bond i.e.10 years. semi Annual Interest payment = ($850000 * 9%)/2 = $38250 Effective Interest rate per annum = 8% i.e. semi annual rate is 4% The effective interest rate is multiplied times the bond's book value at the start of the accounting period to arrive at each period's interest expense Amortization schedule Period Cash Payment (Credit) Interest exp.(Debit) Premium on bonds Payable(Debit) Premium on payable balance Carrying Value At issue                                                  57,759                       9,07,759 31/12/2014 38250                             36,310                     1,940                                                  55,819                       9,05,819 30/06/2015 38250                             36,233                     2,017                                                  53,802                       9,03,802 31/12/2015 38250                             36,152                     2,098                                                  51,704                       9,01,704 30/06/2016 38250                             36,068                     2,182                                                  49,522                       8,99,522 31/12/2016 38250                             35,981                     2,269                                                  47,253                       8,97,253 30/06/2017 38250                             35,890                     2,360                                                  44,893                       8,94,893 31/12/2017 38250                             35,796                     2,454                                                  42,439                       8,92,439 Answer Journal Entries Date Account Title Debit Credit December 31,2016 Interest Expense 35981 Premium on Bonds Payable 2269 Cash 38250 December 31,2017 Interest Expense 35796 Premium on Bonds Payable 2454 Cash 38250

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.