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McGee Company issued $400,000 of 8%, 10-year bonds on January 1,2017. Interest is payable...

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Accounting

McGee Company issued $400,000 of 8%, 10-year bonds on January 1,2017. Interest is payable semiannually on July 1 and January 1.Mcgee Company uses the effective interest method of amortizationfor bond premium or discount. Assume an effective yield of 6% inPricing the bond.

Prepare the journal entries to record the following (round tothe nearest dollar.)

The issuance of the bonds.

The payment of interest and related amortization July 1.

The accrual of interest and the related amortization on December31

Answer & Explanation Solved by verified expert
3.9 Ratings (392 Votes)

Solution :

Computation of bond price
Table values are based on:
n= 20
i= 3%
Cash flow Table Value Amount Present Value
Par (Maturity) Value 0.55368 $400,000 $221,470
Interest (Annuity) 14.87747 $16,000 $238,040
Price of bonds $459,510
Journal Entries
Date Particulars Debit Credit
1-Jan-17 Cash Dr $459,510.00
         To Bond Payable $400,000.00
         To Premium on Bond Payable $59,510.00
(To record issue of bond)
1-Jul-17 Interest expense Dr ($459,510*3%) $13,785.00
Premium on bond Payable Dr $2,215.00
         To Cash ($400,000*4%) $16,000.00
(To record interest payment and premium amortization)
31-Dec-17 Interest expense Dr [(459,510 - $2,215)*3%] $13,719.00
Premium on bond Payable Dr $2,281.00
         To Interest Payable $16,000.00
(To record interest accrued and premium amortization)

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Transcribed Image Text

In: AccountingMcGee Company issued $400,000 of 8%, 10-year bonds on January 1,2017. Interest is payable semiannually...McGee Company issued $400,000 of 8%, 10-year bonds on January 1,2017. Interest is payable semiannually on July 1 and January 1.Mcgee Company uses the effective interest method of amortizationfor bond premium or discount. Assume an effective yield of 6% inPricing the bond.Prepare the journal entries to record the following (round tothe nearest dollar.)The issuance of the bonds.The payment of interest and related amortization July 1.The accrual of interest and the related amortization on December31

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