On January 1, 2010, Osborn Company sold 12% bonds having a maturity value of $800,000 for $860,651.79 which provides the bondholders with a 10% yield. The bonds are dated January 1, 2010, and mature January 1, 2015, with interest payable December 31 of each year. Osborn Company allocates interest and unamortized discount or premium on the effective interest basis.
(a) Prepare the journal entry at the date of the bond issuance. (Round answers to 2 decimal places, e.g. 12,550.20.)
Description/Account Debit Credit
(b) Prepare a schedule of interest expense and bond amortization for 2010-2012. (For each entry in schedule round your answer to 2 decimal places, e.g. 25, 520.20. Use the rounded amount for your calculation of the next entry. When using a calculator, you must alter the value in the calculator window (memory) to the rounded amount.)
Schedule of Interest and Expense and Bond Premium Amortization
Effective Interest Method
12% Bonds Sold to Yield 10%
Date
Cash Paid
Interest Expense
Premium Amortized
Carrying Amt. of Bonds
1/1/10 $
12/31/10 $ $ $
12/31/11
12/31/12
(c) Prepare the journal entry to record the interest payment and the amortization for 2010.
December 31, 2010
Description/Account Debit Credit
(d) Prepare the journal entry to record the interest payment and the amortization for 2012.
December 31, 2012
Description/Account Debit Credit