Answer:
Prepare the schedule using effective-interest method to amortize bond premium or discount of Cullumber Corporation.
The amortization schedule is attached as an excel file:
amortization expense for year 1:
($357,624 x 7%) - ($400,000 x 6%) = $25,034 - $24,000 = $1,034
amortization expense for year 2:
($358,658 x 7%) - ($400,000 x 6%) = $25,106 - $24,000 = $1,106
amortization expense for year 3:
($359,764 x 7%) - ($400,000 x 6%) = $25,183 - $24,000 = $1,183
Prepare the journal entries to record the issuance of the bonds. -Jan. 1, 2014
Dr Cash 357,624
Dr Bond discount 42,376
Cr Bonds payable 400,000
Prepare the journal entries to record the accrual of interest and the discount amortization on December 31, 2014.
Dr Interest expense 25,034
Cr Discount on bonds payable 1,034
Cr Accrued interest payable 24,000
Prepare the journal entries to record the payment of interest on January 1, 2015.
Dr Interest payable 24,000
Cr Cash 24,000
