Indigo Company issued $612,000 of 10%, 20-year bonds on January 1, 2017, at 102.

Question

Indigo Company issued $612,000 of 10%, 20-year bonds on January 1, 2017, at 102. Interest is payable semiannually on July 1 and January 1. Indigo Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.

Prepare the journal entries to record the following. (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. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

(a) The issuance of the bonds. (b) The payment of interest and related amortization on July 1, 2017. (c) The accrual of interest and the related amortization on December 31, 2017.

Explanation / Answer

1/1/2017 Cash 624240 =612000*1.02      Bonds payable 612000      Premium on Bonds payable 12240 7/1/2017 Interest expense 30496 =624240*9.7705%/2 Premium on Bonds payable 104        Cash 30600 =612000*10%/2 12/31/2017 Interest expense 30491 =(624240-104)*9.7705%/2 Premium on Bonds payable 109        Interest Payable 30600

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