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Q16SE_2

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Horngren'S Financial And Managerial Accounting
Found in: Page 658

Short Answer

Using the effective-interest amortization method

On December 31, 2018, when the market interest rate is 8%, Biggs Realty issues

$450,000 of 5.25%, 10-year bonds payable. The bonds pay interest semiannually. The

present value of the bonds at issuance is $365,732.

Requirements

1. Prepare an amortization table using the effective interest amortization method for

the first two semiannual interest periods. (Round to the nearest dollar.)

2. Using the amortization table prepared in Requirement 1, journalize issuance of the

bonds and the first two interest payments.

The cash account is debited with $365,732, and the 8% bond payableaccount is credited with $365,732.

See the step by step solution

Step by Step Solution

Step 1: Definition of journal entry

Journal entry is the primary entry which is made by the accountant in the books of accounts to record the transactions.

Step 2: Journal entries and the payment of interest  

Date

Particulars

Debit

Credit

December 31, 2018

Cash

$365,732

8% Bonds Payable

$365,732

(Being issue entry of the bonds)

June 30, 2019

Interest Expense

$14,630

Discount on Bonds

$2,818

Cash

$11,812

(Being entry for the payment of interest)

December 31, 2019

Interest Expense

$18,427

Discount on Bonds

$6,615

Cash

$11,812

(Being entry for the payment of interest)

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