Ask Question
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

+4
Answers (1)
  1. 8 June, 08:02
    0
    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
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “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 ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers