On July 1, 2017, Bobby\'s Building Corp. issued $1,000,000 of 10% bonds dated Ju
ID: 2555807 • Letter: O
Question
On July 1, 2017, Bobby's Building Corp. issued $1,000,000 of 10% bonds dated July 1, 2017 for $937,229. The bonds were sold to yield 11% and pay interest semiannually on July 1 and January 1. Bobby's Building Corp. uses the effective interest method of amortization. The company's fiscal year ends on February 28.
Required :
1. Prepare the journal entry on July 1, 2017.
2. Prepare the amortization table for the first
two interest periods.
3. Prepare the journal entry on January 1, 2018.
4. Prepare the adjusting entry needed on February 28, 2018.
Round all amounts to the nearest dollar. Omit explanations for all journal entries.
Explanation / Answer
2. Schedule of Amortization of Bond DISCOUNT (Effective Rate Method) Payment intervals Date Interest Expense (Carrying Value* 11% * 1/2half yearly) SemiAnnual Cash Payment Discount Amortization (Interest Expense - Cash Paid) Unamortized Bond Discount Par Value of Bonds Payable Book Value (Par Value - Balance of Unamortized Bond Discount) 0 July.1, 2017 $62,771 $1,000,000 $937,229 1 Jan.1, 2018 $51,548 $50,000 $1,548 $61,223 $1,000,000 $938,777 2 July.1, 2018 $51,633 $50,000 $1,633 $59,591 $1,000,000 $940,409 1. Journal Entry to Record issue of Bond Date Debit Credit 01/07/2017 Cash $937,229 Discount on Bond Payable $62,771 Bond Payable $100,000 3. Journal Entry to record on 01/01/2018 Date Debit Credit 01/01/2018 Interest Expense $51,548 Interest Payable $50,000 Discount on Bond Payable $1,548 4. Journal Entry to record on 28/02/2018 Date Debit Credit 28/02/2018 Interest Expense ($51633*2/6) $17,211 Interest Payable ($50000*2/6) $16,667 Discount on Bond Payable $544
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