Question

Whispering Corporation issued $480,000 of 7% bonds on November 1, 2017, for $515,707. The bonds were dated November 1, 2017, and mature in 10 years, with interest payable each May 1 and November 1. Whispering uses the effective-interest method with an effective rate of 6%.Prepare Whispering's December 31, 2017, adjusting entry.

Answer 1

Answer:

                                                                    Debit                           Credit

Interest Expense                                        5,157

Long term Bonds                                                                            5,157

Explanation:

The 7%bond is issued by the Whispering Corporation on November 1, 2017 and the Whispering Corporation is using effective interest method with an interest rate of 6%, therefore the adjusting entry shall be recorded as at December 31,2017 in respect of interest accrued for two months i.e. November and December 2017 by following amount:

515,707*6%*2/12=5,157

The following adjusting entry shall be recorded in accounts of Whispering Corporation in respect of interest accrued as at December 31, 2017:

                                                                    Debit                           Credit

Interest Expense                                        5,157

Long term Bonds                                                                            5,157