Exercise 10-18 Lorance Corporation issued $832,000, 9%, 10-year bonds on January
ID: 2527569 • Letter: E
Question
Exercise 10-18
Lorance Corporation issued $832,000, 9%, 10-year bonds on January 1, 2015, for $780,157. 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.
Date
Account Titles and Explanation
Debit
Credit
Jan. 1
SHOW LIST OF ACCOUNTS
Date
Account Titles and Explanation
Debit
Credit
July 1
SHOW LIST OF ACCOUNTS
Date
Account Titles and Explanation
Debit
Credit
Dec. 31
Exercise 10-18
Lorance Corporation issued $832,000, 9%, 10-year bonds on January 1, 2015, for $780,157. 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.
Explanation / Answer
Journal entry :
Date accounts & explanation debit credit Jan 1 Cash 780157 Discount on bonds payable 51843 Bonds payable 832000 (To record issue bonds payable) July 1 Interest expense (780157*10%*6/12) 39008 Discount on bonds payable 1568 Cash (832000*9%*6/12) 37440 (To record interest) Dec 31 Interest expense (780157+1568)*5% 39086 Discount on bonds payable 1646 Interest payable 37440 (To record accured interest)Related Questions
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