On January 1, 2020, Wildhorse Corporation issued $2,170,000 face value, 4%, 10-year bonds at $2,002,438. This...
On January 1, 2020, Wildhorse Corporation issued $2,170,000 face value, 4%, 10-year bonds at $2,002,438. This price resulted in an effective-interest rate of 5% on the bonds. Lock uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on January 1.
Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2020, assuming that the bonds sold at 105.
Homework Answers
| Date | Account Titles and Explanation | Debit | Credit |
| January 1, 2020 | Cash | $2,002,438 | |
| Discount on Bond payable | $167,562 | ||
| Bond Payable | $2,170,000 | ||
| December 31, 2020 | Interest Expense ($2,002,438 x 5%) | $100,121.90 | |
| Discount on Bond payable | $13,321.90 | ||
| Interest Payable ($2,170,000 x 4%) | $86,800 |
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