Question

Cullumber Corporation issued $400,000, 6%, 20-year bonds on January 1, 2019, for $357,624. This price resulted in an effective-interest rate of 7% on the bonds. Interest is payable annually on January 1. Cullumber uses the effective-interest method to amortize bond premium or discount.

Prepare the schedule using effective-interest method to amortize bond premium or discount of Cullumber Corporation.(Round answers to 0 decimal places, e.g. 125.)

Interest
Periods

Interest to
Be Paid

Interest Expense
to Be Recorded

Discount
Amortization

Unamortized
Discount

Bond
Carrying Value

Issue date

$

$

$

$

$

1

2

Prepare the journal entries to record the issuance of the bonds. (Round answers to 0 decimal places, e.g. 125.) -Jan. 1, 2014

Prepare the journal entries to record the accrual of interest and the discount amortization on December 31, 2014.(Round answers to 0 decimal places, e.g. 125.)

Prepare the journal entries to record the payment of interest on January 1, 2015. (Round answers to 0 decimal places, e.g. 125.)

Answer 1

Answer:

Prepare the schedule using effective-interest method to amortize bond premium or discount of Cullumber Corporation.

The amortization schedule is attached as an excel file:

amortization expense for year 1:

($357,624 x 7%) - ($400,000 x 6%) = $25,034 - $24,000 = $1,034

amortization expense for year 2:

($358,658 x 7%) - ($400,000 x 6%) = $25,106 - $24,000 = $1,106

amortization expense for year 3:

($359,764 x 7%) - ($400,000 x 6%) = $25,183 - $24,000 = $1,183

Prepare the journal entries to record the issuance of the bonds. -Jan. 1, 2014

Dr Cash 357,624

Dr Bond discount 42,376

    Cr Bonds payable 400,000

Prepare the journal entries to record the accrual of interest and the discount amortization on December 31, 2014.

Dr Interest expense 25,034

    Cr Discount on bonds payable 1,034

    Cr Accrued interest payable 24,000

Prepare the journal entries to record the payment of interest on January 1, 2015.

Dr Interest payable 24,000

    Cr Cash 24,000