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11 June, 08:43

RKO Company sold bonds with a face value of $890,000 for $955,501. The bonds have a coupon rate of 7 percent, mature in 10 years, and pay interest annually every December 31. All of the bonds were sold on January 1 of this year. Record the sale of the bonds on January 1 and the payment of interest on December 31 of this year, without the use of a premium account. RKO uses the effective-interest amortization method. Assume an annual market rate of interest of 6 percent.

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  1. 11 June, 11:38
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    June 1

    Dr cash $955,501

    Cr Discount on bond payable $65,501

    Cr Bond payable $890,000

    June 30

    Dr Interest expense $26,700

    Dr Discount on bonds 4,450

    Cr Cash $31,150

    Explanation:

    RKO Company Journal entry

    June 1

    Dr cash $955,501

    Cr Discount on bond payable $65,501

    ($955,501-$890,000)

    Cr Bond payable $890,000

    June 30

    Dr Interest expense $26,700

    ($890,000*6%*1/2)

    Dr Discount on bonds 4,450

    Cr Cash $31,150

    ($890,000*7%*1/2)
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