Impact of a Premium

Berol Corporation sold 20-year bonds on January 1, 2016. The face value of the bonds was $100,000, and they carry a 9% stated rate of interest, which is paid on December 31 of every year. Berol received $109,330 in return for the issuance of the bonds when the market rate was 8%. Any premium or discount is amortized using the effective interest method.

Required:

1. Prepare the journal entry to record the sale of the bonds on January 1, 2016. How does this entry affect the accounting equation?

Prepare a proper balance sheet presentation for January 1, 2016.

2. Prepare the journal entry to record interest expense on December 31, 2016. How does this entry affect the accounting equation? If required, round your answers to the nearest dollar.

Prepare a proper balance sheet presentation for December 31, 2016.