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Journal Entry to Record the Issuance of the Bonds

On July 1, 2011, Atwater Corporation issued $2,000,000 face value, 10%, 10-year bonds at $2,271,813. This price resulted in an effective-interest rate of 8% on the bonds. Atwater uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest July 1 and January 1.

Prepare entries to record issuance of bonds, payment of interest, and amortization of bond premium using effective-interest method.

(Round all computations to the nearest dollar).

1. Prepare the journal entry to record the issuance of the bonds on July 1, 2011.
2. Prepare an amortization table through December 31, 2012 (3 interest periods) for this bond issue.
3. Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2011.

(c) Amortization $9,127

# Prepare the journal entry to record the payment of interest and the amortization of the premium on July 1, 2012, assuming no accrual of interest on June 30.

(d) Amortization $9,493

# Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2012.

(e) Amortization $9,872.

Solution Preview

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

1 Data provided
Maturity Value of Bonds $2,000,000
Contract interest rate 10%
Interest paid semi-annually $100,000.00

Effective Rate of interest 8%
Issue price $2,271,813
Premium $271,813

2 Amortization Schedule (Table)-Effective interest rate method ...

Solution Summary

The solution provides a journal entry to record the issuance of the bonds.

$2.19