Answer:
Explanation:
We are to prepare the journal entries for the following :
January 1, 2016 Sold the bonds at an effective rate of 10%
December 31, 2016 First interest payment using the effective interest
method
December 31, 2016 Amortization of bond issue costs using the straight-
line method
December 31, 2017 Second interest payment using the effective interest
method
December 31, 2017 Amortization of bond issue costs using the straight-line
method
The Journal entries can be prepared in an illustrative table format as shown below:
Date Account Title Debit ($) Credit ($)
2016 Cash 962091.83
Jan 1 Discount on bonds payable
$( 1000000 - 962091.83) 37908.17
Bond Payable 1000000.00
TO record issue of bonds
Jan 1 Deferred Bond Issue 18000.00
Cash 18000.00
2016 Interest expense
(962091.83 × 10%) 96209.18
Dec 31 Discount on bond payable 6209.18
Cash (1000000 × 9%) 90000.00
TO record the payment of semi-annual interest
2016 Interest expense
(18000 + 5 years) 3600.00
Dec 31 Deferred bond issue costs 3600.00
TO record the amortization of bonds on issue costs
2017 Interest expense
(962091.83 + 6209.18) × 10% 96830.10
Dec 31 Discount on bond payable 6830.10
Cash (1000000 × 9%) 90000.00
TO record the payment of semi-annual interest
2017 Interest expense
(18000 + 5 years) 3600
Dec 31 Deferred bond issue costs 3600.00
TO record the amortization of bonds on issue costs
