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Correct Solution for E11-18

# Correct Solution for E11-18 - 6/10 Pts Earned*E11-18 Hrabik...

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6/10 Pts Earned *E11-18 Hrabik Corporation issued \$600,000, 9%, 10-year bonds on January 1, 2008, for \$562,613.This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Hrabik uses the effective-interest method to amortize bond premium or discount. Instructions Prepare the journal entries to record the following. (Round to the nearest dollar.) (a) The issuance of the bonds. (b) The payment of interest and the discount amortization on July 1, 2008, assuming that interest was not accrued on June 30. (c) The accrual of interest and the discount amortization on December 31, 2008. Solution

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Jan. 1 Cash 600,000 Notes The correct amount is bonds payable. You did not record the discount on the bonds payable in the amount of \$37,387. Refer to pages 488 and 489 for illustrated entries for bonds issued at a discount. Cash 562,613 Discount on Bonds Payable .................................................................. 37,387 Bonds Payable ........................................................................... 600,000 The interest is paid semiannually; therefore, the bond interest expense is \$28,131, Bond Interest Expense 28,131 (\$562,613 X 5%) Discount on Bonds Payable .....................................................
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Correct Solution for E11-18 - 6/10 Pts Earned*E11-18 Hrabik...

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