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    Effective Interest Method for Lucy Corporation issuance of bonds

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    On January 1, 2007, Lucy Corporation issued $1,200,000 face value, 7% 10 -year
    bonds at $1,119,479 This price resulted in an effective-interest rate of 8% on the bonds.
    Lucy uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest
    January 1.
    Instructions: (Round all computations to the nearest dollar.)
    (a) Prepare the journal entry to record the issuance of the bonds on January 1, 2007.

    01/01/07 Account title Amount
    Account title Amount
    Account title Amount

    (b) Prepare an amortization table through December 31, 2009 (three interest periods) for this bond issue.

    LUCY CORP.
    Bond Discount Amortization
    Effective-Interest Method—Annual Interest Payments
    7% Bonds Issued at 8%
    (A) (B) (C) (D) (E)
    "Annual
    Interest
    Periods" "Interest
    to be
    Paid" "Interest
    Expense
    to be
    Recorded" "Discount
    Amor-
    tization
    (B) - (A)" "Unamor-
    tized
    Discount
    (D) - (C)" "Bond
    Carrying
    Value
    ($1,200,000 - D)"
    Issue date
    1
    2
    3

    (c) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2007.

    12/31/07 Account title Amount
    Account title Amount
    Account title Amount

    (d) Prepare the journal entry to record the payment of interest on January 1, 2008.

    01/01/08 Account title Amount
    Account title Amount

    (e) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2008.

    12/31/08 Account title Amount
    Account title Amount
    Account title Amount

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    https://brainmass.com/business/journal-entries/effective-interest-method-lucy-corporation-issuance-bonds-348387

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    Solution is provided in a separate excel file attached in the following parts.

    1 Prelimanary information:

    2 Solution:

    (a) Journal ...

    Solution Summary

    The effective interest method for Lucy Corporation issuance of bonds is examined.

    $2.19