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On October 1, 2019, Ball Company issued 10% bonds dated October 1, 2019, with a face...

Question

On October 1, 2019, Ball Company issued 10% bonds dated October 1, 2019, with a face...

On October 1, 2019, Ball Company issued 10% bonds dated October 1, 2019, with a face amount of $190,000. The bonds mature in 11 years. Interest is paid semiannually on March 31 and September 30. The proceeds from the bond issuance were $195,094.43 to yield 9.60%. Ball Company has a December 31 fiscal year-end and does not use reversing entries.

Required:

1. Prepare journal entries to record the issuance of the bonds and the interest payments for 2019 and 2020 using the effective interest method.
2. Prepare journal entries to record the issuance of the bonds and the interest payments for 2019 and 2020 using the straight-line method.
CHART OF ACCOUNTS
Ball Company
General Ledger
ASSETS
111 Cash
121 Accounts Receivable
141 Inventory
152 Prepaid Insurance
181 Equipment
198 Accumulated Depreciation
LIABILITIES
211 Accounts Payable
231 Salaries Payable
250 Unearned Revenue
255 Bonds Payable
256 Premium on Bonds Payable
257 Discount on Bonds Payable
258 Interest Payable
261 Income Taxes Payable
EQUITY
311 Common Stock
331 Retained Earnings
REVENUE
411 Sales Revenue
EXPENSES
500 Cost of Goods Sold
511 Insurance Expense
512 Utilities Expense
521 Salaries Expense
532 Bad Debt Expense
540 Interest Expense
541 Depreciation Expense
559 Miscellaneous Expenses
910 Income Tax Expense

Answers

1. Journal entries using the effective interest method:

Date Account Title Debit Credit
$ $
October 1 2019 Cash             1,95,094.43
Bonds payable 1,90,000.00
Premium on bonds payable       5,094.43
December 31 2019 Interest expense (195,094.43*9.6%*3/12)                  4,682.27
Premium on bonds payable                       67.73
Interest payable (190000*10%*3/12)       4,750.00
March 31 2020 Interest expense  (($195,094.43-67.73)*9.6%*3/12)                  4,680.64
Interest payable                  4,750.00
Premium on bonds payable                       69.36
Cash  (190000*10%*6/12)       9,500.00
September 30 2020 Interest expense                  9,357.95
Premium on bonds payable                     142.05
Cash       9,500.00
2. Journal entries using the straight-line method:
Date Account Titles Debit Credit
$ $
October 1 2019 Cash             1,95,094.43
Bonds payable 1,90,000.00
Premium on bonds payable       5,094.43
December 31 2019 Interest expense                  4,634.22
Premium on bonds payable ($5094.43/(11*12)*3)                     115.78
Interest payable (190,000*10%*3/12)       4,750.00
March 31 2020 Interest expense                  4,634.22
Interest payable                  4,750.00
Premium on bonds payable ($5094.43/(11*12)*3)                     115.78
Cash (190,000*10%*6/12)       9,500.00
September 30 2020 Interest expense                  9,268.44
Premium on bonds payable ($5094.43/(11*12)*6)                     231.57
Cash (190,000*10%*6/12)       9,500.00


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