Logan Corporation issued $800,000 of 8% bonds on October 1, 2006, due on October 1, 2011. The interest is to be paid twice a year on April 1 and October 1. The bonds were sold to yield 10% effective annual interest. Logan Corporation closes its books annually on December 31.
Instructions:
(a) Complete the following amortization schedule for the dates indicated. (Round all answers to the nearest dollar.)
Use the effective-interest method.
Debit Credit Carrying Amount
Credit Cash Interest Expense Bond Discount of Bonds
01-Oct-06 $738,224
01-Apr-07
01-Oct-07
(b) Prepare the adjusting entry for December 31, 2007. Use the effective-interest method.
(c) Compute the interest expense to be reported in the income statement for the year ended December 31, 2007.