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8 June, 07:22

On January 1, 2016, Knorr Corporation issued $1,000,000 of 9%, 5-year bonds dated January 1, 2016. The bonds pay interest annually on December 31. The bonds were issued to yield 10%. Bond issue costs associated with the bonds totaled $18,000. Required: Prepare the journal entries to record the following: January 1, 2016 Sold the bonds at an effective rate of 10% December 31, 2016 First interest payment using the effective interest method December 31, 2016 Amortization of bond issue costs using the straight-line method December 31, 2017 Second interest payment using the effective interest method December 31, 2017 Amortization of bond issue costs using the straight-line method

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  1. 8 June, 08:02
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    We are to prepare the journal entries for the following:

    January 1, 2016 Sold the bonds at an effective rate of 10%

    December 31, 2016 First interest payment using the effective interest

    method

    December 31, 2016 Amortization of bond issue costs using the straight-

    line method

    December 31, 2017 Second interest payment using the effective interest

    method

    December 31, 2017 Amortization of bond issue costs using the straight-line

    method

    The Journal entries can be prepared in an illustrative table format as shown below:

    Date Account Title Debit ($) Credit ($)

    2016 Cash 962091.83

    Jan 1 Discount on bonds payable

    $ (1000000 - 962091.83) 37908.17

    Bond Payable 1000000.00

    TO record issue of bonds

    Jan 1 Deferred Bond Issue 18000.00

    Cash 18000.00

    2016 Interest expense

    (962091.83 * 10%) 96209.18

    Dec 31 Discount on bond payable 6209.18

    Cash (1000000 * 9%) 90000.00

    TO record the payment of semi-annual interest

    2016 Interest expense

    (18000 + 5 years) 3600.00

    Dec 31 Deferred bond issue costs 3600.00

    TO record the amortization of bonds on issue costs

    2017 Interest expense

    (962091.83 + 6209.18) * 10% 96830.10

    Dec 31 Discount on bond payable 6830.10

    Cash (1000000 * 9%) 90000.00

    TO record the payment of semi-annual interest

    2017 Interest expense

    (18000 + 5 years) 3600

    Dec 31 Deferred bond issue costs 3600.00

    TO record the amortization of bonds on issue costs
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Home » Business » On January 1, 2016, Knorr Corporation issued $1,000,000 of 9%, 5-year bonds dated January 1, 2016. The bonds pay interest annually on December 31. The bonds were issued to yield 10%. Bond issue costs associated with the bonds totaled $18,000.
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