Whispering Corporation issued $480,000 of 7% bonds on November 1, 2017, for $515,707. The bonds were dated November 1, 2017, and mature in 10 years, with interest payable each May 1 and November 1. Whispering uses the effective-interest method with an effective rate of 6%. Prepare Whispering's December 31, 2017, adjusting entry.

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Gunnar Hanna

22 October, 04:10

Whispering Corporation issued $480,000 of 7% bonds on November 1, 2017, for $515,707. The bonds were dated November 1, 2017, and mature in 10 years, with interest payable each May 1 and November 1. Whispering uses the effective-interest method with an effective rate of 6%. Prepare Whispering's December 31, 2017, adjusting entry.

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Mohammed Arnold · Answer 1

Debit Credit

Interest Expense 5,157

Long term Bonds 5,157

Explanation:

The 7%bond is issued by the Whispering Corporation on November 1, 2017 and the Whispering Corporation is using effective interest method with an interest rate of 6%, therefore the adjusting entry shall be recorded as at December 31,2017 in respect of interest accrued for two months i. e. November and December 2017 by following amount:

515,707*6%*2/12=5,157

The following adjusting entry shall be recorded in accounts of Whispering Corporation in respect of interest accrued as at December 31, 2017:

Debit Credit

Interest Expense 5,157

Long term Bonds 5,157