Hernandez Company issued $380,000, 7%, 10-year bonds on January 1, 2022, for $407,968. This price resulted in an effective-inter

Question

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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-inter

est 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.

Mathematics

1 answer:

vlada-n [284] · Answer 1 · 2023-08-19T04:15:23+03:00

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

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<h3>Journal entry to record issuance of the bonds</h3>

Date Account titles Debit Credit

Jan. 1. Cash $407,968

Bonds payable $380,000

Premium on bonds payable $27,968

($407,968 - $380,000)

<h3>Journal entry to record accrual of interest and the premium amortization</h3>

Date Account titles Debit Credit

Dec. 31. Bond interest expense $24,478

Premium bond payable $2,122

Bond interest payable $26,600

<h3>Journal entry to record payment of interest </h3>

Date Account titles Debit Credit

Jan. 1. Bond interest payable $26,600

($380000 * 7%)

Cash $26,600

Missing words "<em>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"</em>

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