Share
Explore BrainMass

Bonds Payable for Maharlika Corporation

Maharlika Corporation issued a 10-year $1.5 million 6% bond. Interest payments will be on a semi-annual basis. The effective rate at the point of sale, January 1, 2005, is 8% and Maharlika closes its accounting records on December 31 of each year.

Instructions:

Prepare the journal entries for:
(a) to record the issuance of the bonds.
(b) to record the first three semi-annual interest payments using the effective interest method to amortize any discount or premium

Solution Preview

Prepare the journal entries for:
(a) to record the issuance of the bonds.

First, we need to calculate how much the bonds have been issued by using the formula as follows: -

where B is the issued price
C is the coupon payment
r is the effective rate
n is the period

As the payment is semi-annual, the effective rate used must be divide by 2, that is equal to 4%. The period must also multiply by 2, that is equal to 20. Coupon payment must ...

Solution Summary

This solution is comprised of a detailed explanation to record the issuance of the bonds and record the first three semi-annual interest payments using the effective interest method to amortize any discount or premium for Maharlika Corporation.

$2.19