Question

5 % On January 1, 2017, Lock Corporation issued $1,800,000 face value, 1 10 -year bonds at $1,667,518 This price resulted in an effective-interest rate of 6% on the bonds. Lock uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January 1. Instructions: (Round all computations to the nearest dollar.) (a) Prepare the journal entry to record the issuance of the bonds on January 1, 2017. 01/01/14 Account title Account title Account title Amount Amount Amount (b) Prepare an amortization table through December 31, 2019, (three interest periods) for this bond issue. LOCK CORPORATION Bond Discount Amortization Effective-Interest Method-Annual Interest Payments 5% Bonds Issued at 6% (B) (C) (D) Interest Discount Unamor- Interest Expense Amor- tized to be to be tization Discount Paid Recorded (B) - (A) (D -(C) (A) Annual Interest Periods Issue date (E) Bond Carrying Value ($1,800,000 - 2 3 c) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2017. 12/31/14 Amount Account title Account title Account title Amount Amount (d) Prepare the journal entry to record the payment of interest on January 1, 2018. Amount] 01/01/15 Account title Account title Amount (e) Prepare the journal entry to record the accrual of interest and the amortization of the discount on December 31, 2018. Amount 12/31/15 Account title Account title Account title Amount Amount

Answer 1

Amortization table
Date	Interest Payment($1,800,000*5%)	Interest expenses(Bond carrying amount*6%)	Discount amorrtization	Unamortized discount	Bond carrying amount
1				1,32,482	16,67,518
2	90,000	1,00,051	10,051	1,22,431	16,77,569
3	90,000	1,00,654	10,654	1,11,777	16,88,223
	Date	Accounts and explanation	Debit(in $)	Credit(in $)
	01-Jan-14	Cash	16,67,518
		Discount on Bonds Payable	1,32,482
		Bonds Payable		18,00,000
		(To bonds issued at discount)
	31-Dec-14	Interest Expenses	1,00,051
		Discounts on Bond payable		10,051
		Interest payable		90,000
		(Discount on Bonds amortized)
	01-Jan-15	Interest payable	90,000
		Cash		90,000
	31-Dec-15	Interest Expenses	1,00,654
		Discounts on Bond payable		10,654
		Interest payable		90,000
		(Discount on Bonds amortized)