The board of directors of Arizona Motor Shops, Inc., authorized the issuance of $1,000,000 face value, 10-year, 8 percent bonds dated April 1, 2016, and maturing on April 1, 2026. Interest is payable semiannually on April 1 and October 1.
INSTRUCTIONS
1. Record the transactions below in general journal form. Use the account names given in the chapter.
2. Prepare the Long-Term Liabilities section of the corporation's balance sheet on December 31, 2016.
DATE TRANSACTIONS FOR 2016
Apr. 1 Issued $500,000 face value bonds at 101.6.
Oct. 1 Paid the semiannual interest on the outstanding bonds and amortized the bond premium. (Make two entries. Use the straight-line method to compute the amortization.)
Dec. 31 Recorded the adjusting entry for accrued interest and amortization of the bond premium for three months. (Make one entry.)
31 Closed the Bond Interest Expense account to the Income Summary account.
DATE TRANSACTIONS FOR 2017
Jan. 1 Reversed the adjusting entry made on December 31, 2016.
Analyze:
If the reversing entry was not recorded, what entry would be required when the interest expense is paid in April 2017?