On January 1, 2017, Lock Corporation issued $1,800,000 face value, 5%, 10-year b
ID: 2416040 • Letter: O
Question
On January 1, 2017, Lock Corporation issued $1,800,000 face value, 5%, 10-year bonds at $1,667,510. This price resulted in an effective-interest rate of 6% on the bonds. The bonds pay annual interest January 1.
Instructions (Round all computations to the nearest dollar.)
(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2017.
(b) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2017 and December 31, 2018 assuming the use of straight- line method to amortize the discount/premium.
(c) Prepare an amortization table for 10 interest period for this bond issue using the effective interest method to amortize the discount/premium.
(d) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2017. Prepare the journal entry to record the payment of interest on January 1, 2018. Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2018. Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2019.
Explanation / Answer
Answer:(a)
1 Jan 2017 Cash A/C Dr. $1667,510
Discount on issue of bonds Payable A/C Dr. $132490
To Bonds Payable A/C $1800,000
Answer:(b)
31 Dec 2017 Bonds Interest expense A/C Dr. $100051
To Discount on Bonds Payable A/C $10051
To Bonds Interest Payable A/C $90000
31 dec 2018 Bonds Interest expense A/C Dr. $100654
To Discount on Bonds Payable A/C $10654
To Bonds Interest Payable A/C $90000
Answer:(c)
Answer:(d)
31 Dec 2017 Bonds Interest expense A/C Dr. $100051
To Discount on Bonds Payable A/C $10051
To Bonds Interest Payable A/C $90000
1 jan 2018 Bond Interest expense A/C Dr. $100051
To cash A/C $90000
To Discount on bonds payable A/c $10051
31 dec 2018 Bonds Interest expense A/C Dr. $100654
To Discount on Bonds Payable A/C $10654
To Bonds Interest Payable A/C $90000
31 Dec 2019 Bonds Interest expense A/C Dr. $101293
To Discount on Bonds Payable A/C $11293
To Bonds Interest Payable A/C $90000
Date Interest to be paid Interest expense to be recorded Discount Amortization Unamortized discount Bond carrying value 1-Jan-17 132490 1667510 31-Dec-17 90000 100051 10051 122439 1677561 31-Dec-18 90000 100654 10654 111786 1688214 31-Dec-19 90000 101293 11293 100493 1699507 31-Dec-20 90000 101970 11970 88522 1711478 31-Dec-21 90000 102689 12689 75834 1724166 31-Dec-22 90000 103450 13450 62384 1737616 31-Dec-23 90000 104257 14257 48127 1751873 31-Dec-24 90000 105112 15112 33015 1766985 31-Dec-25 90000 106019 16019 16995 1783005 31-Dec-26 90000 106980 16980 0 1800000