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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Brief Exercise Bonds issued at a Premium (Effective Interest)

Refer to the information above for Haley Industries.

Required:

Record the journal entries for December 31,2021 and 2022.

To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

To prepare:

The journal entries as on Dec. 31, 2021 and Dec. 31, 2022.

Explanation

The Amortization table for Bonds using the effective interest method is explained as follows:

Amortization Table
Using the effective interest rate method
Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Premium Amortized Unamortized Premium Carrying Value
A=850000*9%/2 B =Prior E *8%/2 C =A-B D =Prior D -C E = 850000+D
0 Jan. 1, 2021 $ - $ - $ 57,759 $ 907,759
1 Dec. 31, 2021 $ 38,250 $ 36,310 $ 1,940 $ 55,819 $ 905,819
2 Dec. 31, 2022 $ 38,250 $ 36,233 $ 2,017 $ 53,802 $ 903,802
3 Dec...

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