Recording Issuance of Bonds, Payment of Interest, and Amortization of Bond Discount
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On July 1, 2006, Kingston Satellites issued $3,600,000 face value, 9%, 10-year bonds at $3,375,680. This price resulted in an effective-interest rate of 10% on the bonds. Kingston uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest July 1 and January 1.
Instructions (round all computations to the nearest dollar):
(a) Prepare the journal entry to record the issuance of the bonds on July 1, 2006.
(b) Prepare the journal entry to record the accrual of interest and the amortization of the discount
on December 31, 2006.
(c) Prepare the journal entry to record the payment of interest and the amortization of the discount
on July 1, 2007, assuming that interest was not accrued on June 30.
(d) Prepare the journal entry to record the accrual of interest and the amortization of the discount
on December 31, 2007.
(e) Prepare an amortization table through December 31, 2007 (3 interest periods) for this bond
issue.
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Solution provides an excel file attached with the table-effective interest rate method of amortization, journal entries and note for explanation shown.
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