On January 1, 2016, Smalls, Inc. issued $60,000 of its 12-year 10% bonds for $52,584. Interest is payable annually and the effective yield was 12%. Costs connected with the issue totaled $3,200.Required:
a.Prepare the entry to record the issuance of the bonds.b.Prepare the journal entry to record interest expense in 2017 using the effective interest method.c.Prepare the journal entry to record interest expense in 2017 using the straight-line method.
What will be an ideal response?
?
| a. | Cash ($52,584-$3,200) | 52,584 | ? | |||||
| ? | Discount on Bonds Payable | 7,416 | ? | |||||
| ? | ? | Bonds Payable | ? | 60,000 | ||||
| Deferred Debt Issuance Costs | 3,200 | |||||||
| Cash | 3,200 | |||||||
| ? | ? | ? | ? | |||||
| b. | Bond Interest Expense | 6,614 | ? | |||||
| ? | ? | Deferred Debt Issuance Costs | ? | 267 | ||||
| ? | ? | Discount on Bonds Payable | ? | 347* | ||||
| ? | ? | Cash | ? | 6,000 | ||||
| ? | ? | |||||||
| ? | ? | *BV of Bonds | Int. | Int. | Disc. | |||
| ? | ? | @ Beg. of Yr. | Exp. (12%) | Pd. | Amort. | |||
| ? | 2016 | 52,584 | 6,310 | 6,000 | 310 | |||
| ? | 2017 | 52,894 | 6,347 | 6,000 | 347 | |||
| c. | Bond Interest Expense | 6,885 | ? | ||
| ? | ? | Deferred Debt Issuance Costs | ? | 267* | |
| ? | ? | Discount on Bonds Payable | ? | 618** | |
| ? | ? | Cash | ? | 6,000 | |
| ? | ? | ? | ? | ||
| ? | * | 3,200/12 = $267 per year | ? | ? | |
| ? | ** | 7,416/12 = $618 per year | ? | ? | |
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Indicate whether the statement is true or false
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