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    Bonds Payable for Maharlika Corporation

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    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

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    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

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