On October 1 2016 Ball Company issued 9 bonds dated October

On October 1, 2016, Ball Company issued 9% bonds dated October 1, 2016, with a face amount of $100,000. The bonds mature in 8 years. Interest is paid semiannually on March 31 and September 30. The proceeds from the bond issuance were $101,131.59 to yield 8.80%. Ball Company has a December 31 fiscal year-end and does not use reversing entries.

Solution

Effective interest method Journal:

Workings:

Straight line method:

workings:

Date	Account title	Debit	Credit
Oct.1	2016	cash	1,01,131.59
		Premium on bonds payable		1,131.59
		Bonds payable		1,00,000.00
Dec.31	2016	Interest expense	2,224.89
		Premium on bonds payable	25.11
		Interest payable		2,250.00
Mar.31	2017	Interest expense	2,224.89
		Premium on bonds payable	25.11
		Interest payable	2,250.00
		Cash		4,500.00
Sep.30	2017	Interest expense	4,447.58
		Premium on bonds payable	52.42
		Cash		4,500.00
Dec.31	2017	Interest expense	2,222.64
		Premium on bonds payable	27.36
		Interest payable		2,250.00