Khan Corporation has $20,000,000 of 10.5 percent, 20 year bonds dated June 1, with interest payment dates of May 31 and November 30. The company’s fiscal year ends December 31. It uses the effective interest method to amortize bond premiums or discounts (Round amounts to the nearest dollars).
1. Assume the bonds are issued at 103 on June 1 to yield an effective interest rate of 10.1 percent. Prepare journal entries for June 1, November 30, and December 31.
2. Assume the bonds are issued at 97 on June 1 to yield an effective interest rate of 10.9 percent. Prepare journal entries for June 1 and November 30 and December 31.
3. Assume the bonds are issued at face value plus accrued interest on August 1. Prepare journal entries for August 1, November 30 and December 31.
P3
Waxman Corporation issued bonds twice during 20x2. A summary of the transactions involving the bonds follows.
2002
Jan 1 Issued $6,000,000 of 9.9 percent ten-year bonds dated January 1, 20x2, with interest payable on June 30 and December 31. The bonds were sold at 102.6, resulting in an effective interest rate of 9.4 percent.
Mar 1 Issued $4,000,000 of 9.2 percent, ten-year bonds dated March 1, 2002, with interest payable March 1 and September 1. The bonds were sold at 98.2, resulting in an effective interest rate of 9.5 percent.
June 30 Paid semiannual interest on January 1 issue and amortized the premium, using the effective interest method.
Sept 1 Paid semiannual interest on the March 1 issue and amortized the premium, using the effective interest method.
Dec 31 Paid semiannual interest on the January 1 issue and amortized the premium, using the effective interest method.
31 Made an end-of-year adjusting entry to accrue interest on the March 1 issue and to amortize two-thirds of the discount to the second interest period.
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