Chowan Corporation issued $100,000 of 10% bonds dated January 1, 2013, for $96,8
ID: 2482365 • Letter: C
Question
Chowan Corporation issued $100,000 of 10% bonds dated January 1, 2013, for $96,832.73 on January 1, 2013. The bonds are due December 31, 2016, were issued to yield 11%, and pay interest semi-annually on June 30 and December 31. Chowan uses the effective interest method amortization.
Prepare the journal entries to record the issue of the bonds on January 1, 2013, and the interest payments on June 30, 2013, December 31, 2013, and June 30, 2014. If an amount does not require an entry, leave it blank. Round your answer to two decimal places, if necessary.
Explanation / Answer
Effective interest method for amortization A B C D E F G Date Interest @ 5% semi annually Interest expense on market rate @ 5.5% semi annually i.e 5.5% on G Amortization of bond discount (C-B) Debit Balance in Bond discount Credit Balance in Bond payable Book Value of Bond (F -E) Cash - credit Interest expense -Debit Bond discount- credit 01 January 2013 $ 3,167.27 $ 1,00,000 $ 96,832.73 30 June 2013 $ 5,000 $ 5,325.80 $ 325.80 $ 2,841.47 $ 1,00,000 $ 97,158.53 31 December 2013 $ 5,000 $ 5,343.72 $ 343.72 $ 2,497.75 $ 1,00,000 $ 97,502.25 30 June 2014 $ 5,000 $ 5,362.62 $ 362.62 $ 2,135.13 $ 1,00,000 $ 97,864.87 31 December 2014 $ 5,000 $ 5,382.57 $ 382.57 $ 1,752.56 $ 1,00,000 $ 98,247.44 30 June 2015 $ 5,000 $ 5,403.61 $ 403.61 $ 1,348.95 $ 1,00,000 $ 98,651.05 31 December 2015 $ 5,000 $ 5,425.81 $ 425.81 $ 923.14 $ 1,00,000 $ 99,076.86 30 June 2016 $ 5,000 $ 5,449.23 $ 449.23 $ 473.91 $ 1,00,000 $ 99,526.09 31 December 2016 $ 5,000 $ 5,473.91 $ 473.91 $ 0.00 $ 1,00,000 $ 1,00,000.00 Total $ 40,000 $ 43,167 $ 3,167 Journal entry on bond issue with discount Date Account Name Debit Credit 01 January 2013 Cash $ 96,832.73 Discount on bond issue $ 3,167.27 Bonds payable $ 1,00,000.00 Journal entry on interest payments Date Account Name Debit Credit 30 June 2013 Interest Expense $ 5,325.80 Discount on Bonds payable $ 325.80 Cash $ 5,000.00 Date Account Name Debit Credit 31 December 2013 Interest Expense $ 5,343.72 Premium on Bonds payable $ 343.72 Cash $ 5,000.00 Date Account Name Debit Credit 30 June 2014 Interest Expense $ 5,362.62 Premium on Bonds payable $ 362.62 Cash $ 5,000.00
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