Intermediate Accounting II

Bond issuance and adjusting entries

A bond issued January 1, 2015 face value $1,000,000 and a maturity date of December 31, 2024. Stated interest rate 8%, payable on January 1 and July 1. They were sold for $820,744, a yield of 11%. It cost Encino $40,000 to issue the bonds. The amount was deferred and amortized over the life of the issue using a straight - line method.

Assume that both companies have December 31, year ends and that Encino uses the effective-interest method to amortize, any premium or discount and SeaRay, uses the straight line method.

Make all necessary to record the sale and purchase of the bonds on each companys books.

Prepare the adjusting entries as of December 31, 2015, for both companies. Assume SeaRay is carrying the bonds as long a long - term held -to -maturity security.

I am not sure if I am going about this the correct way. I took Intermediate Accounting back in 2006 and do not remember how to do this.

Cash $820,744

Bonds Payable

Interest Expense

Interest Payable $80,000

Premium on Bond Payable

Cash $40,000

Interest Receivable