On January 1, 2017, Ashlock Chemical AG issued €4,000,000, 10%, 10-year bonds at €4,543,627. This price resulted in an 8% effective-interest rate on the bonds. Ashlock uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1.
Instructions
(Round all computations to the nearest euro.)
(a) Prepare the journal entries to record the following transactions.
(1) The issuance of the bonds on January 1, 2017.
(2) Accrual of interest and amortization of the premium on December 31, 2017.
(3) The payment of interest on January 1, 2018.
(4) Accrual of interest and amortization of the premium on December 31, 2018.
(b) Show the proper non-current liabilities statement of fi nancial position presentation for the bond liability at December 31, 2018.
(c) Provide the answers to the following questions in narrative form.
(1) What amount of interest expense is reported for 2018?
(2) Would the bond interest expense reported in 2018 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?