How does compound interest differ from simple interest?
In the simple interest, interest is calculated on the principal amount only. On the other hand, compound interest is calculated on principal and all previous interest.
Interest is the amount an investor earns on the investment.
Simple interest is one of the easiest methods to calculate the interest in this. Interest is calculated by multiplying principal, interest rate, and period. Compound interest is the interest calculated on the compound value or sum of interest and principal amount.
Journalizing bond transactions
Power Company issued a $1,000,000, 5%, 5-year bond payable at face value on
January 1, 2018. Interest is paid semiannually on January 1 and July 1.
1. Journalize the issuance of the bond payable on January 1, 2018.
2. Journalize the payment of semiannual interest on July 1, 2018.
Analyzing and journalizing bond transactions
On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payable with face value of $1,000,000. These bonds pay interest on June 30 and December 31. The issue price of the bonds is 109.Journalize the following bond transactions:
a. Issuance of the bonds on January 1, 2018.
b. Payment of interest and amortization on June 30, 2018.
c. Payment of interest and amortization on December 31, 2018.
d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment has already been recorded.
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