Question
Journal entries for effective interest and straight-line methods of computing bond interest. On October 1, Year 1, Howell Stores, Inc. issues twenty-year, first mortgage bonds
Journal entries for effective interest and straight-line methods of computing bond interest. On October 1, Year 1, Howell Stores, Inc. issues twenty-year, first mortgage bonds with a face value of $1,000,000. The proceeds of the issue are $1,060,000. The bonds bear interest at the rate of 10 percent per year, payable semiannually at April 1 and October 1. Howell Stores Inc. closes its books annually at December 31. Round amounts to the nearest dollar.
REQUIRED:
a. Present dated journal entries related to the bonds from October 1, Year 1 through October 1, Year 2, inclusive, assuming that Howell Stores, Inc. uses the straight-line method to recognize interest expense.
b. Present dated journal entries related to the bonds from October 1, Year 1 through October 1, Year 2, inclusive, assuming that Howell Stores, Inc. uses the effective-interest method. The effective-interest rate to be used is 9.3 percent, compounded semiannually.
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