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16 October, 04:29

On January 1, 2020, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The bonds were issued for $644,636, and pay interest each July 1 and January 1. The effective-interest rate is 6%.

Prepare the company's journal entries for

(a) the January 1 issuance,

(b) the July 1 interest payment, and

(c) the December 31 adjusting entry.

JWS uses the effective-interest method.

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  1. 16 October, 08:12
    0
    The Journal entries are as follows:

    (a) On January 1,

    Cash A/c Dr. $644,636

    To Premium on bonds payable $44,636

    To bonds payable $600,000

    (To record the issuance)

    (b) On July 1,

    Interest expense A/c Dr. $19,339

    Premium on bonds payable A/c Dr. $1,661

    To cash A/c $21,000

    (To record the interest expense)

    Workings:

    Interest expense:

    = $644,636 * 6% * (6/12)

    = $19,339

    Cash:

    = $600,000 * 7% * (6/12)

    = $21,000

    (c) On December 31,

    Interest expense A/c Dr. $19,289

    Premium on bonds payable A/c Dr. $1,711

    To Interest payable A/c $21,000

    (To record the adjusting entry)

    Workings:

    Interest expense:

    = ($644,636 - $1,661) * 6% * (6/12)

    = $19,289

    Interest payable:

    = $600,000 * 7% * (6/12)

    = $21,000
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