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Hernandez Company issued $380,000, 7%, 10-year bonds on January 1, 2022, for $407,968. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable annually on January 1. Hernandez uses the effective-interest method to amortize bond premium or discount.

Sagot :

Tundexi

For calculation of the following entries, the bond interest expense will gotten by multiplying the carrying bond value by the market interest rate.

Journal entry to record issuance of the bonds

Date    Account titles                   Debit        Credit

Jan. 1.  Cash                                $407,968

                 Bonds payable                           $380,000

                 Premium on bonds payable      $27,968

                 ($407,968 - $380,000)

Journal entry to record accrual of interest and the premium amortization

Date      Account titles                          Debit      Credit

Dec. 31. Bond interest expense          $24,478

                    Premium bond payable                    $2,122

                    Bond interest payable                      $26,600

Journal entry to record payment of interest

Date    Account titles                   Debit        Credit

Jan. 1.  Bond interest payable     $26,600

           ($380000 * 7%)

                   Cash                                            $26,600

Missing words "Prepare journal entries to record (a) The issuance of the bonds, (b) The accrual of interest and the premium amortization on December 31, 2022 and (c) The payment of interest on January 1, 2022"

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