On January 1, 2014, Jade Company issued $2,000,000 face value, 7%, 10-year bonds
ID: 2505159 • Letter: O
Question
On January 1, 2014, Jade Company issued $2,000,000 face value, 7%, 10-year bonds at $2,147,202. This price resulted in a 6% effective-interest rate on the bonds. Jade uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1.
Prepare the journal entries to record the following transactions. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually. The issuance of the bonds on January 1, 2014. Accrual of interest and amortization of the premium on December 31, 2014. The payment of interest on January 1, 2015. Accrual of interest and amortization of the premium on December 31, 2015.Explanation / Answer
Explanation
Interest accrued on December 31, 2014 = 2147202*6%=128,832
Interest payable for 2014 = 2000000*7%=140000
premium amortization for 2014 = 140000-128,832=11,168
carrying value = 2147202-11,168= 2,136,034
Interest accrued for 2015 = 2,136,034*6%=128162
Interest payable for 2015 = 2000000*7%=140000
premium amortization for 2015 = 140000-128162=11,838
Journal Entry for Dec.31, 2014
Interest Expense 128,832
Premium on Bonds Payable 11,168
Interest Payable 140,000
Journal Entry for jan 1, 2014
Cash 140, 000
Interest payable 140,000
Journal Entry for Dec.31, 2014
Interest Expense 128,162
Premium on Bonds Payable 11,838
Interest Payable 140,000
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