CHAPTER 9 LECTURE EXAMPLE 4 Gonzalez Corporation issued $400,000, 7%, 20-year bo
ID: 2599659 • Letter: C
Question
CHAPTER 9 LECTURE EXAMPLE 4 Gonzalez Corporation issued $400,000, 7%, 20-year bonds on January 1, 2016, for $360,727. This price resulted in an effective interest rate of 8% on the bonds. Interest is payable annually on January 1. Gonzalez uses the effective interest method to amortize bond premiums and discounts. Prepare the journal entries to record: 1. The issuance of the bonds 2. The accrual of interest and the premium or discount amortization on December 31, 2016. 3· The payment of interest on January 1, 2017. Also, what amounts would be shown on the December 31, 2016 financial statements?Explanation / Answer
1) 1-Jan-16 Cash 360727 Discount on bonds payable 39273 Bonds payable 400000 2) 31-Dec-16 Interest expense (360727*8%) 28858 Discount on bonds payable 858 Interest payable (400000*7%) 28000 3) 1-Jan-17 Interest payable 28000 Cash 28000 FINANCIAL STATEMENTS: INCOME STATEMENT: Other incomes/(expenses) Interest expense -28858 BALANCE SHEET: Current liabilities: Interest payable 28000 NON CURRENT LIABILITIES: Bonds payable 400000 Less: Discount on bonds payable 38415 361585