On October 1, 2016, Ball Company issued 10% bonds dated October 1, 2016, with a

Question

On October 1, 2016, Ball Company issued 10% bonds dated October 1, 2016, with a face amount of $350,000. The bonds mature in 8 years. Interest is paid semiannually on March 31 and September 30. The proceeds from the bond issuance were $355,751.07 to yield 9.70%. Ball Company has a December 31 fiscal year-end and does not use reversing entries.

Required:

1. Prepare journal entries to record the issuance of the bonds and the interest payments for 2016 and 2017 using the effective interest method. 2. Prepare journal entries to record the issuance of the bonds and the interest payments for 2016 and 2017 using the straight-line method.

Explanation / Answer

1. Journal entries using the effective interest method:

2. Journal entries using the straight-line method:

Date Account Title Debit Credit $ $ October 1 2016 Cash 355,751.07 Bonds payable 350,000 Premium on bonds payable 5,751.07 December 31, 2016 Interest expense 8,626.96 Premium on bonds payable 123.04 Interest payable 8,750 March 31 2017 Interest expense 8,623.98 Interest payable 8,750 Premium on bonds payable 126.02 Cash 17,500 September 30 2017 Interest expense 17,241.85 Premium on bonds payable 258.15 Cash 17,500

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