Task 1: On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note.
Instructions:
(a) Prepare the entry on June 1.
(b) Prepare the adjusting entry on June 30.
(c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been made through November 30.
(d) What was the total financing cost (interest expense)?
Task 2: Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2008, for $562,613.This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Hrabik uses the effective-interest method to amortize bond premium or discount.
Instructions:
Prepare the journal entries to record the following. (Round to the nearest dollar.)
(a) The issuance of the bonds.
(b) The payment of interest and the discount amortization on July 1, 2008, assuming that interest was not accrued on June 30.
(c) The accrual of interest and the discount amortization on December 31, 2008.