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.)

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