Question

On January 1, 2022, Ayayai Corporation issued $1,820,000 face value, 6%, 10- year bonds at $1,692,171. This price resulted in an effective-interest rate of 7% on the bonds. Ayayai uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January 1.
Prepare the journal entries to record the following transactions. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually.)1. The issuance of the bonds on January 1, 2022.2. Accrual of interest and amortization of thepremium on December 31, 2022.3. The payment of interest on January 1, 2023.4. Accrual of interest and amortization of thepremium on December 31, 2023.

Answer 1

Answer:

$1,820,000 million in bonds issued January 1, 2022

coupon rate 6%

maturity = 10 years x 2  = 20 periods

market interest rate = 7%

1) January 1, 2022, bonds issued at a discount

Dr Cash 1,692,171

Dr Discount on bonds payable 127,829

   Cr Bonds payable 1,820,000

2) December 31, 2022, accrued interests on bonds payable

Dr Interest expense 118,452

   Cr Interest payable 109,200

   Cr Discount on bonds payable 9,252

amortization of bond discount = ($1,692,171 x 7%) - $109,200  = $9,252

3) January 1, 2023, first coupon payment

Dr Interest payable 109,200

  Cr Cash 109,200

4) December 31, 2023, accrued interests on bonds payable

Dr Interest expense 119,100

   Cr Interest payable 109,200

   Cr Discount on bonds payable 9,900

amortization of bond discount = ($1,701,423 x 7%) - $109,200  = $9,900