Question

On October 1, 2016, Ball Company issued 10% bonds dated October 1, 2016, with a face amount of $350,000. The bonds mature in 8 years. Interest is paid semiannually on March 31 and September 30. The proceeds from the bond issuance were $355,751.07 to yield 9.70%. Ball Company has a December 31 fiscal year-end and does not use reversing entries.

Required:

1.	Prepare journal entries to record the issuance of the bonds and the interest payments for 2016 and 2017 using the effective interest method.

Answer 1

Credit Date Oct. 1, 2016 Debit $ 355,751.07 Account title and explanation Cash Bonds payable Premium on bonds payable (To record the issuance of bonds) $ 350,000.00 $ 5,751.07 Dec. 31, 2016 $ 8,626.96 $ 123.04 Interest expense (355,751.07x9.70%x3/12) Premium on bonds payable Interest payable (350,000x10%x3/12) (To record the adjusting entry) $8,750.00 Mar. 31, 2017 Interest payable Interest expense (355,751.07x9.70%x3/12) Premium on bonds payable Cash (350,000x10%x6/12) (To record the interest payment) $ 8,750.00 $ 8,626.96 $ 123.04 $ 17,500.00 $ 17,241.99| $ 258.01 Sept. 30, 2017 Interest expense (355,751.07-246.08x9.70%x6/12) Premium on bonds payable Interest payable (350,000x10%x6/12) (To record the interest payment) $ 17,500.00