Exercise 14-9 (Part Level Submission)
On June 30, 2017, Pronghorn Company issued $5,200,000 face value of 13%, 20-year bonds at $5,591,193, a yield of 12%. Pronghorn uses the effective-interest method to amortize bond premiums or discounts. The bonds pay semiannual interest on June 30 and December 31.
Prepare the journal entries to record the following transactions. (Round answer to o decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) (1) The issuance of the bonds on June 30, 2017. (2) The payment of interest and the amortization of the premium on December 31, 2017. (3) The payment of interest and the amortization of the premium on June 30, 2018. (4) The payment of interest and the amortization of the premium on December 31, 2018. No. Date Account Titles and Explanation Debit Credit (1) June 30, 2017 Cash 5,591,193 Bonds Payable 5,200,000 Premium on Bonds Payable 391,193 (2) December 31, 2017 Interest Expense 335,472 Premium on Bonds Payable 2,528 Cash 338,000 (3) June 30, 2018 Interest Expense 335,320 Premium on Bonds Payable 2,680 M Cash 338,000 (4) December 31, 2018 Interest Expense 335,159 Premium on Bonds Payable 2841 Cash 338,000 (b) Your answer is correct. Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2018, balance sheet. (Round answers to 0 decimal places, e.g. 38,548.) Pronghorn Company Balance Sheet December 31, 2018 Long-term Liabilities Bonds Payable 5,200,000 Premium on Bonds Payable 383,144 Book Value of Bonds Payable 5,583,144 SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT Attempts: 2 of 2 used (C) Provide the answers to the following questions. (1) What amount of interest expense is reported for 2018? (Round answer to 0 decimal places, e.g. 38,548.) Interest expense reported for 2018 $ (2) Will 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? The bond interest expense reported in 2018 will be the amount that would be reported if the straight-line method of amortization were used. (3) Determine the total cost of borrowing over the life of the bond. (Round answer to o decimal places, e.g. 38,548.) Total cost of borrowing over the life of the bond (4) Will the total bond interest expense for the life of the bond be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used? The total bond interest expense for the life of the bond will be the total interest expense if the straight-line method of amortization were used
