This exercise will illustrate the computations and journal entries for a bond when the…
This exercise will illustrate the computations and journal entries for a bond when the effective-interest method of amortization is used.
The Jan Larsen Corporation issued bonds with the following details:
Face value
$100,000.00
Contractual interest rate
7%
Market interest rate
10%
Maturity date
January 1, 2017
Date of issuance
January 1, 2014
Issuance price
$92,539.95
Interest payments due
Annually on January 1
Method of amortization
Effective-interest
End of annual reporting period
December 31
Instructions
(a) Complete the amortization schedule for these bonds which appears below.
(b) Prepare the journal entries to record:
(1) The issuance of the bonds on January 1, 2014.
(2) The adjusting entry(s) at December 31, 2014.
(3) The payment entry on January 1, 2015. (Assume reversing entries are not used.)