Hernandez Company issued $380,000, 7%, 10-year bonds on January 1, 2022, for $407,968. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable annually on January 1. Hernandez uses the effective-interest method to amortize bond premium or discount.

Question

07-07-2022
Mathematics

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Hernandez Company issued $380,000, 7%, 10-year bonds on January 1, 2022, for $407,968. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable annually on January 1. Hernandez uses the effective-interest method to amortize bond premium or discount.

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Tundexi Tundexi · Answer 1 · 2022-07-08T18:16:12+02:00

For calculation of the following entries, the bond interest expense will gotten by multiplying the carrying bond value by the market interest rate.

Journal entry to record issuance of the bonds

Date Account titles Debit Credit

Jan. 1. Cash $407,968

Bonds payable $380,000

Premium on bonds payable $27,968

($407,968 - $380,000)

Journal entry to record accrual of interest and the premium amortization

Date Account titles Debit Credit

Dec. 31. Bond interest expense $24,478

Premium bond payable $2,122

Bond interest payable $26,600

Journal entry to record payment of interest

Date Account titles Debit Credit

Jan. 1. Bond interest payable $26,600

($380000 * 7%)

Cash $26,600

Missing words "Prepare journal entries to record (a) The issuance of the bonds, (b) The accrual of interest and the premium amortization on December 31, 2022 and (c) The payment of interest on January 1, 2022"