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8 April, 02:37

On January 1, 2013, JWS Corporation issued $693,000 of 7% bonds, due in 10 years. The bonds were issued for $645,911, and pay interest each July 1 and January 1. JWS uses the effective interest method. Prepare the company's journal entries for

(a) the January 1 issuance,

(b) the July 1 interest payment, and

(c) the December 31 adjusting entry. Assume an effective interest rate of 8%. (List multiple debit/credit entries from largest to smallest amount, e. g. 10, 5, 2. Round answers to zero decimal places, e. g. 2,510.)

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  1. 8 April, 05:04
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    Calculation for A:

    Jan 1

    Outstanding Balance 645,911

    Calculation for B:

    July 1

    Cash Interest Payment 693,000 * 0.07 * 6/12 = 24,255

    Interest Expense 645,911 * 0.08 * 6/12 = 25,836.44

    Discount Amortized = 25,836.44 - 24,255=1,581.44

    Outstanding Balance 645,911 + 1,581.44 = 647,492.4

    Calculation for C:

    Dec 31

    Cash Interest Payable 24,255

    Interest Expense 647,492.44 * 0.08 * 6/12 = 25,899.696

    Discount Amortized 1,644.693

    Outstanding Balance 647,499.24 + 1,644.693 = 649137.096

    Now, Journal entries:

    (a)

    Dr Cash 645,911

    Dr Discount on Bonds Payable 47,089

    Cr Bonds Payable 693,000

    (b)

    Dr Interest Expense 25,836

    Cr Discount on Bonds Payable 1,581

    Cr Cash 24,255

    (c)

    Dr Interest Expense 225,899

    Cr Discount on Bonds Payable 1,644

    Cr Interest Payable 24,255
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