Answer:
Ayayai Corporation
Journal Entries:
1. Issuance of bonds on January 1, 2017:
Debit Cash $1,482,239
Debit Bonds discount $117,761
Credit 10- year 5% Bonds payable $1,600,000
2. Accrual of interest and amortization of the discount on December 31, 2017:
Debit Interest expense $88,934
Credit Interest payable $80,000
Credit Amortization of discount $8,934
To record the accrual of interest and amortization of discount.
3. The payment of interest on January 1, 2018:
Debit Interest payable $80,000
Credit Cash $80,000
4. Accrual of interest and amortization of thepremium on December 31, 2017:
Debit Interest expense $96,536
Credit Interst payable $80,000
Credit Amortization of discount $16,536
Step-by-step explanation:
a) Data and Calculations:
Face value of bonds = $1,600,000
Bonds price $1,482,239
Bonds discount $117,761
Coupon interest rate = 5%
Effective interest rate = 6%
Payment of interest = Annually on January 1
1. Issuance of bonds on January 1, 2017:
Cash $1,482,239
Bonds discount $117,761
10- year 5% Bonds payable $1,600,000
2. December 31, 2017:
Cash Payment = $80,000
Interest expense $88,934
Amortization of discount = $8,934
Fair value of bonds = $1,608,934
3. January 1, 2018:
Interest payable $88,934
Cash $80,000
Amortization of discount $8,934
4. December 31, 2017:
Cash Payment = $80,000
Interest expense $96,536 (6% of $1,608,934)
Amortization of discount = $16,536
Fair value of bonds = $1,705,470