[The following information applies to the questions displayed below.] On January

Question

[The following information applies to the questions displayed below.]

On January 1, 2018, Twister Enterprises, a manufacturer of a variety of transportable spin rides, issues $570,000 of 8% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year.

Problem 9-4A Part 2

2. If the market interest rate is 9%, the bonds will issue at $517,555. Record the bond issue on January 1, 2018, and the first two semiannual interest payments on June 30, 2018, and December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Need entries for Jan 1, 2018, June 30, 2018, and Dec 31, 2018

References

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General JournalDifficulty: 3 Hard

Problem 9-4A Part 2

Explanation / Answer

First we shall prepare a working note, to know the interest expense at the interest payment dates.

NOte: interest expense is different from interst payment and is calculated as (carrying value of bond * effective rate)

working note:

the following is an extract from the amortization schedule:

The following will be the required journal entries:

Interest periods Interest to be paid Interest expense Discount amortization Unamortized discount Carrying value of bond 01 jan 2018 NIl nil nil ($570,000 - 517,555)=>$52,445. $517,555 June 30,2018 ($570,000*8%*1/2=>$22,800 ($517,555)*9%*(1/2)=>$23,290 $23,290- 22,800=>$490 ($52,445 - 490)=>$51,955 (517555+490)$518,045 December31,2018 ($570,000*8%*1/2)=>$22,800 (518,045)*9%*(1/2)=>$23,312 $23,312-22,800=>$512 (51955-512)=>51,443 (518,045+512)=>$518,557

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