Exercise E10-18

E10-18
Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2011, for $562,613. This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Hrabik uses the effective-interest method to amortize bond premium or discount.

Prepare entries for issuance of bonds, payment of interest, and amortization of discount using effective-interest method.

Instructions

Prepare the journal entries to record the following. (Round to the nearest dollar.)

(a)  The issuance of the bonds.

(b)  The payment of interest and the discount amortization on July 1, 2011, assuming that interest was not accrued on June 30.

(c)  The accrual of interest and the discount amortization on December 31, 2011.
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A.

Debit: Cash 562,613
Debit: Disc on Bonds Payable 37,387
Credit: Bonds Payable 600000

B.

Debit: Bond Interest Expense 28,131
Credit: Disc on Bonds Payable 1,131
Credit: Cash 27,000

C.

Debit: Bond Interest Expense 28,187 1,187
Credit: Disc on Bonds Payable
Credit: Bond Interest Payable 27,000

answered 2 years ago

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