Question

Lincoln Company issued $50,000 of 10-year, 8% bonds payable on January 1, 2018. Lincoln Company pays interest each January 1 and July 1 and amortizes discount or premium by the straight-line amortization method. The company can issue its bonds payable under various conditions. Read the requirements. Requirement 1. Journalize Lincoln Company's issuance of the bonds and first semiannual interest payment assuming the bonds were issued at face value. Explanations are not required. (Record debits first, then credits. Exc i Requirements Journalize the issuance of the bond payable at face value. Date Accounts 2018 | Jan. 1 II 1. Journalize Lincoln Company's issuance of the bonds and first semiannual interest payment assuming the bonds were issued at face value. Explanations are not required. Journalize Lincoln Company's issuance of the bonds and first semiannual interest payment assuming the bonds were issued at 96. Explanations are not required. 3. Journalize Lincoln Company's issuance of the bonds and first semiannual interest payment assuming the bonds were issued at 106. Explanations are not required. 4. Which bond price results in the most interest expense for Lincoln Company? Explain in detail. Journalize the payment of semiannual interest when the bonds are i Date Accounts

Answer 1

1)	Date	Accounts				Debit	Credit
	2018	Cash				50,000
	1-Jan	Bonds payable					50,000
	7/1/2018	interest expense				2000
		cash					2000
2)	Date	Accounts				Debit	Credit
	1/1/2018	Cash				48000
		Discount on bonds				2000
		Bonds payable					50,000
	7/1/2018	interest expense				2,100
		discount on bonds					100
		cash					2000
3)	Date	Accounts				Debit	Credit
	1/1/2018	Cash				53000
		premium on bonds					3000
		bonds payable					50,000
	7/1/2018	interest expense				1850
		premium on bonds				150
		cash					2,000
4)	the	discount/$96    results in the most interest expense .The discount must
		be amortized over the life of the bond resulting in interest expense
		more than the amount of interest actually paid