Lorance Corporation issued $809,000, 7%, 10-year bonds on January 1, 2015, for $

Question

Lorance Corporation issued $809,000, 7%, 10-year bonds on January 1, 2015, for $754,029. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable semiannually on July 1 and January 1f. Lorance uses the effective-interest method to amortize bond premium or discount. Prepare the journal entry to record the issuance of the bonds. (Round answers to 0 decimal places, e.g. 15,250. Credit account titles are automatically indented when amount is entered. Do not indent manually.) 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. (Round answers to 0 decimal places, e.g. 15,250. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Prepare the journal entry to record the accrual of interest and the discount amortization on December 31, 2015. (Round answers to 0 decimal places, e.g. 15,250. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

Jan, 1 Cash $       754,029 Discount on bonds $          54,971 7% Bonds $       809,000 Jul, 1 Interest Expense $    30,161.16 Discount on bonds $      1,846.16 Cash $    28,315.00 Dec, 31 Interest Expense $    30,235.01 Discount on bonds $      1,920.01 Accrued interest $    28,315.00 Interest Paid Interest Expense Discount amortized Discount FV Book Value Jan, 1 2015 54971 809000 754029 July 1, 2015 28315 30161.16 1846.16 53124.84 809000 755875.16 Jan, 1 2016 28315 30235.0064 1920.01 51204.83 809000 757795.17 Jul, 1 2016 28315 30311.80666 1996.81 49208.03 809000 759791.97 Jan, 1 2017 28315 30391.67892 2076.68 47131.35 809000 761868.65 Jul, 1 2017 28315 30474.74608 2159.75 44971.60 809000 764028.4 Jan, 1 2018 28315 30561.13592 2246.14 42725.47 809000 766274.53 Jul, 1 2018 28315 30650.98136 2335.98 40389.48 809000 768610.52 Jan, 1 2019 28315 30744.42061 2429.42 37960.06 809000 771039.94 Jul, 1 2019 28315 30841.59744 2526.60 35433.47 809000 773566.53 Jan, 1 2020 28315 30942.66134 2627.66 32805.81 809000 776194.19 Jul, 1 2020 28315 31047.76779 2732.77 30073.04 809000 778926.96 Jan, 1 2021 28315 31157.0785 2842.08 27230.96 809000 781769.04 Jul, 1 2021 28315 31270.76164 2955.76 24275.20 809000 784724.8 Jan, 1 2022 28315 31388.99211 3073.99 21201.21 809000 787798.79 Jul, 1 2022 28315 31511.95179 3196.95 18004.25 809000 790995.75 Jan, 1 2023 28315 31639.82986 3324.83 14679.42 809000 794320.58 Jul, 1 2023 28315 31772.82306 3457.82 11221.60 809000 797778.4 Jan, 1 2024 28315 31911.13598 3596.14 7625.46 809000 801374.54 Jul, 1 2024 28315 32054.98142 3739.98 3885.48 809000 805114.52 Jan, 1 2025 28315 32204.58067 3889.58 -4.10 809000 809004.1

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