Question
Burroughs Corporation (with a December 31 year-end) issued $418,000, 8% bonds due in 7 years on May 1, 2016. Interest is paid semi-annually on October
Burroughs Corporation (with a December 31 year-end) issued $418,000, 8% bonds due in 7 years on May 1, 2016. Interest is paid semi-annually on October 31 and April 30 of each year. On the issuance date, the market rate of interest was 9%, resulting in a price of $396,700 for these bonds. The premium/discount is amortized using the effective interest rate method.
b) Prepare the journal entry on October 31, 2016, to record the first interest payment and the amortization of the premium/discount.
[Oct 31] Debit Interest Expense for $17,852. Credit Cash for $16,720. Credit Discount on Bonds for $1,132.
would you please tell how to calculate these?
c) Prepare the adjusting entry on December 31, 2016.
would you please tell how to calculate these?
[Dec 31] Debit Interest Expense for $5,967. Credit Discount on Bonds for $394. Credit Interest Payable for $5,573.
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