On January 1 2016 Knorr Corporation issued 900000 of 6 5year

On January 1, 2016, Knorr Corporation issued $900,000 of 6%, 5-year bonds dated January 1, 2016. The bonds pay interest annually on December 31 The bonds were issued to yield 796 Bond issue costs associated with the bonds totaled $10,687.46 Required: l. Prepare the journal entries to record the following: January 1, 2016 December 31, 2016 December 31, 2016 December 31, 2017 December 31, 2017 sold the bonds at an effective rate of 7% First interest payment using the effective interest method Amortization of bond issue costs using the straight-line method Second interest payment using the effective interest method Amortization of bond issue costs using the straight-line method

Solution

General Journal Date Account Tite Post Ref. Debit Credit Jan. 1, 2016 Cash $ 852,410.76 Deferred Bond Issue Costs $    10,687.46 Discount on Bonds Payable $    36,901.78 Bonds Payable $ 900,000.00 Dec. 31, 2016 Interest Expense* $    60,416.88 Discount on Bonds Payable (Diff) $      6,416.88 Cash (900000 x 6%) $    54,000.00 Interest Expense*** $      2,137.49 Deferred Bond Issue Costs $      2,137.49 Dec. 31, 2017 Interest Expense** $    60,866.06 Discount on Bonds Payable (Diff) $      6,866.06 Cash (900000 x 6%) $    54,000.00 Interest Expense $      2,137.49 Deferred Bond Issue Costs $      2,137.49 Amount $ Hint Coupon payment 54000 (900000 x 6%) x PVIFA(7% , 5)     4.1001974       221,410.66 Face Value 900000 x PVF(7%, 5)     0.7129862       641,687.56 Present value of bonds       863,098.22 Less: Deferred bond issue costs $     10,687.46 Cash received $ 852,410.76 *Interest expense on Dec 31, 16      60,416.88 (863098.22 x 7%) **Interest expense on Dec 31, 17      60,866.06 [(863098.22+6416.88) x 7%] ***Amortization of bond issue cost        2,137.49 (10687.46/5)