On January 1, 2013, Knorr Corporation issued $1,000,000 of 9%, 5-year bonds dated January 1, 2103. The

Question:

On January 1, 2013, Knorr Corporation issued $1,000,000 of 9%, 5-year bonds dated January 1, 2103. The bonds pay interest annually on December 31. The bonds were issued to yield 10%. Bond issue costs associated with the bonds totaled $18,000.

Required:

1. Prepare the journal entries to record the following:

January 1, 2013 Sold the bonds at an effective rate of 10%

December 31, 2013 First interest payment using the effective interest method

December 31, 2013 Amortization of bond issue costs using the straight-line method

December 31, 2014 Second interest payment using the effective interest method

December 31, 2014 Amortization of bond issue costs using the straight-line method

2. Assume that the company uses IFRS and that it issued the bonds for net proceeds (after deducting the bond issue costs of $18,000) of $944,091.83, which is consistent with an effective interest rate of 10.49%. Prepare the journal entries for the sale of the bonds and the first two interest payments

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...