Question

Linda Williams Company issued $420,000 of 10%,20-year bonds on January 1,2025 , at 102 . Interest is payable semiannually on July 1and January 1. Linda Williams Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705% Click here to view factor tables. Prepare the journal entries to record the following. (Round intermediate calculations to 6 decimal ploces, eg. 1.251247 and final answer to O decimol places, eg. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries.)

a. The issuance of the bonds.
b. The payment of interest and related amortization on July 1,2025.
c. The accrual of interest and the related amortization on December 31,2025.

Answer 1

The journal entries to record the issuance of the bonds, payment of interest and related amortization on July 1, 2025, and accrual of interest and related amortization on December 31, 2025.

Step-by-step explanation:

a. The journal entry to record the issuance of the bonds would be:

Debit: Cash ($420,000 × 102%) = $428,400

Credit: Bonds Payable = $420,000

Credit: Premium on Bonds Payable ($428,400 - $420,000) = $8,400

b. The journal entry to record the payment of interest and related amortization on July 1, 2025, would be:

Debit: Interest Expense ($420,000 × 10% × rac{1}{2}) = $21,000

Debit: Premium on Bonds Payable ($420,000 × 2.7068750 × rac{1}{2}) = $569.902083

Credit: Cash = $21,569.902083

c. The journal entry to record the accrual of interest and the related amortization on December 31, 2025, would be:

Debit: Interest Expense ($420,000 × 10% × rac{1}{2}) = $21,000

Debit: Premium on Bonds Payable ($420,000 × 2.4912214 × rac{1}{2}) = $522.321223

Credit: Cash = $21,522.321223