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Prepare entries for issuance of bonds

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Hurley Company issued $400,000, 11%, 10-year bonds on January 1, 2006, for $424,925. This price resulted in an effective interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Hurly uses the effective interest method to amortize bond premium or discount.

Instructions: Prepare the journal entries to record the following (rounds to the nearest dollar).
1. The issuance of the bonds.
2. The payment of interest and the premium amortization on July 1, 2006, assuming
that interest was not accrued on June 30.
4. The accrual of interest and the premium amortization on December 31, 2006.

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Solution Summary

The solution explains various entries relating to bonds.

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1. The issuance of the bonds.
The face value if 400,000 and the amount received is 424,925. The additional amount is the premium. The entry is
Cash Dr 424,925
Bonds Payable Cr 400,000
Premium on Bonds Payable Cr 24,925

2. The payment of interest ...

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