Exercise 10-18 Lorance Corporation issued $843,000, 9%, 10-year bonds on January

Question

Exercise 10-18

Lorance Corporation issued $843,000, 9%, 10-year bonds on January 1, 2015, for $790,472. This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Lorance uses the effective-interest method to amortize bond premium or discount. (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.)

Date Account Titles and Explanation Debit Credit Jan1

Explanation / Answer

Journal entry :

Date accounts & explanation debit credit Jan 1 Cash 790472 Discount on bonds payable 52528      Bonds payable 843000 (To record bonds issue) July 1 Interest expense (790472*10%*6/12) 39524      Discount on bonds payable 1589      Cash (843000*9%*6/12) 37935 (To record interest payment) Dec 31 Interest expense (790472+1589*10%*6/12) 39603       Discount on bonds payable 1668       Interest payable 37935 (To record accure interest)

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