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Jan 1, 2017, Ky Corporation issues $4,000,000 of 10 percent, five year bonds at 92.79. Interest...

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Accounting

Jan 1, 2017, Ky Corporation issues $4,000,000 of 10 percent,five year bonds at 92.79. Interest is paid ANNUALLY, and theeffective interest rate of 12% is used for amortization.

What amount was received for the bonds?

Make Journal entries for the Jan 1 issuance of the bond and thefirst two interest transactions: December 31, 2017 (accrual) andDec 31, 2018 (accrual).

Answer & Explanation Solved by verified expert
4.2 Ratings (896 Votes)

WORKING NOTES

A B C D E F G
Date Interest Payment stated 10% effective interest rate stated 12% amortisation(c-b) debit in bond ac = discount (Previous e-d) credit balance in bond payable bv(f-e)
0 288400 4000000 3711600
1 400000 445392 45392 243008 4000000 3756992
2 400000 450839.04 50839.04 192168.96 4000000 3807831.04
3 400000 456939.7248 56939.7248 135229.2352 4000000 3864770.765
4 400000 463772.4918 63772.49178 71456.74342 4000000 3928543.257
5 400000 471425.1908 71425.19079 31.55263488 4000000 4000000

Journals...

Date Particulars Debit Credit
1-Jan-17 Cash ….Dr 3711600
Discount on Bonds Payable…Dr 288400
To Bonds Payable 4000000
31-Dec-17 Interest Expense …Dr 445392
To Discount on Bonds Payable 45392
To Cash 400000
31-Dec-18 Interest Expense …dr 450839.04
To Discount on Bonds Payable 50839
To Cash 400000
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