On January 1, 2020, Tamarisk Corporation issued $700,000 of 9% bonds, due in 8 years. The bonds were issued for $740,784, and pay interest each July 1 and January 1. The effective-interest rate is 8%.

Required:

1. 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. Tamarisk uses the effective-interest method. (Round intermediate calculations to 6 decimal places, e. g. 1.251247 and final answer to 0 decimal places, e. g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.

Cash 740,783 debit

Bonds payable 700,000 credit

Premium ob BP 40,783 credit

--to record issuance--

Interest expense 29,631.32 debit

premium on BP 1,868.68 debit

cash 31,500 credit

--to reocrd first interest payment--

Interest expense 29,556.57 debit

premium on BP 1,943.43 debit

interest payable 31,500 credit

--to record accrued interest at year-end on BP--

Explanation:

procceds 740,783

face value 700,000

premium on bonds payable 40,783

When comparing, the firm received more than the face value hence, there is a premium on the bonds as the coupon payment are above the market rate.

Now, the interest will be calculate as follow:

carrying value x market rate:

740,783 x 0.08/2 = 29,631.32 interest expense

cash outlay:

700,000 x 0.09/2 = 31,500

amortization on premium (difference) 1,868.68

new carrying value: 740,783 - 1,868,68 = 738,914

second payment accrual:

738,914 x 0.04 = 29,556.57

cash outlay 31500

amortization 1,943.43