Question 2

On May 1, 2017, Custody Storage Company issued a $400,000, 6% ten- year bond. Interest is to be paid semi-annually Oct 31 and April 30. The market rate of interest was 4% on the date of the bond issue and the bonds were sold for $465,406.

Note: Show your calculations and round to the nearest dollar.

Required:

a) Prepare the general journal entry for the issuance of the bonds.

b) Prepare the two separate general journal entries for the Oct 31, 2017 and April 30, 2018 interest payments using the effective interest method of allocating interest and amortizing the bond discount or bond premium.