On January 1, 2007, Stavlund Corporation issued $1,400,000 face value, 12% 10 –year bonds at $1,572,048 This price resulted in an effective-interest rate of 10% on the bonds. Stavlund uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January 1.
Instructions: (Round all computations to the nearest dollar.)
(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2007.
(b) Prepare an amortization table through December 31, 2009 (three interest periods) for this bond issue.
Bond Premium Amortization
Effective-Interest Method—Annual Interest Payments
12% Bonds Issued at 10%
(A) (B) (C)
Interest to be Paid Interest Expense to be Recorded Premium Amortization (A) - (B)
(D) (E)
Unamortized Premium (D) - (C) Bond Carrying Value ($1,400,000 + D)
Annual Interest Periods
Issue date
1
2
3
(c) Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2007.
(d) Prepare the journal entry to record the payment of interest on January 1, 2008.
(e) Prepare the journal entry to record the accrual of interest and the amortization of the premium on December 31, 2008. SOLUTION
