This exercise will illustrate the computations and journal entries for a bond when the effective-interest method of amortization is used.
The Jan Larsen Corporation issued bonds with the following details:
| Face value | $100,000.00 |
| Contractual interest rate | 7% |
| Market interest rate | 10% |
| Maturity date | January 1, 2017 |
| Date of issuance | January 1, 2014 |
| Issuance price | $92,539.95 |
| Interest payments due | Annually on January 1 |
| Method of amortization | Effective-interest |
| End of annual reporting period | December 31 |
Instructions
(a) Complete the amortization schedule for these bonds which appears below.
(b) Prepare the journal entries to record:
(1) The issuance of the bonds on January 1, 2014.
(2) The adjusting entry(s) at December 31, 2014.
(3) The payment entry on January 1, 2015. (Assume reversing entries are not used.)
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