question archive On 1/1/18, McDaniels Inc
On 1/1/18, McDaniels Inc
Subject:AccountingPrice:2.86 Bought7
On 1/1/18, McDaniels Inc. issued $800,000 face value, ten year bonds and received $930,834 as cash proceeds on the date of issuance. The coupon rate was 6% and the market rate of interest at issuance was 4%. The coupon payments are semi- annual and are paid on 6/30 and 12/31 each year. Show all calculations. You do not need to recalculate the issuance proceeds.
a. Record the journal entry necessary at 6/30/2018.
b. Record the journal entry necessary at 12/31/2018
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6/30/2018
Debit: interest expense 24,000
Credit: cash 24,000
Debit: Interest expense 5,383
Credit: investment in bonds 5,383
12/30/2018
Debit: Interest expense 24,000
Credit: Cash 24,000
Debit: Interest expense 5,491
Credit: Investment in bonds 5,491
Step-by-step explanation
6/30/2018:
Interest expense = 800,000 × 3% = 24,000
To record amortization:
930,834 × 2% = 18,617
24,000 - 18,617 = 5,383
Carrying amount of the bond = 930,834 - 5,383 = 925,451
12/31/2018
Interest expense = 800,000 × 3% = 24,000
To record amortization:
925,451 × 2% = 18,509
24,000 - 18,509 = 5,491
