(Supplement 14B) Recording the Effects of a Premium Bond Issue and First Interes
ID: 2494216 • Letter: #
Question
(Supplement 14B) Recording the Effects of a Premium Bond Issue and First Interest Payment (Effective-interest Amortization) Grocery Corporation received S312.341 for $260,000, 11.0 percent bonds issued on January 1, 2008, at a market interest rate of 8.0 percent. The bonds stated that interest would be paid each December 31 and that they mature on December 31, 2017 and assume Grocery Corporation uses the effective-interest method to amortize the bond premium. Requirement 1:Prepare the journal entry to record the bond issue. (Omit the "$" sign in your response.) Requirement 2: Prepare the journal entries to record the December 31 interest payments in 2008 and 2009. (Round your answers to the nearest dollar amount. Omit the "$" sign in your response.) E14-18 (Supplement 14B) Recording the Effects of a Premium Bond Issue and First Interest Payment (Effective-Explanation / Answer
A B C D E F G Date Interest payment Interest expense Amortization of Credit balance Credit Balance Book value stated Market 8% into bond premium in bond premium in Bonds Payable of bonds 11% * FV previous BV in G C - B F +E 01-Jan-08 52341 260000 312341 31-Dec-08 28600 24987.28 -3612.72 48728.28 260000 308728.28 31-Dec-09 28600 24698.26 -3901.74 44826.54 260000.00 304826.54 Requirement 1 journal entry for Bond issue 01-Jan-08 Cash Dr 312341 Premium on Bond Payable Cr 52341 Bonds payable Cr 260000 Requirement 2 Journal entries for payment of interest 31-Dec-08 Interest Expense Dr 24987.28 Premium on Bond Payable Dr 3612.72 Cash Cr 28600 31-Dec-09 Interest Expense Dr 24698.26 Premium on Bond Payable Dr 3901.74 Cash Cr 28600
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