Questions -
1) On January 1, 2017, Jade Company issued $2,000,000 face value, 7%, 10-year bonds at $2,147,202. This price resulted in a 6% effective-interest rate on the bonds. Jade uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1.
Instructions - (a) Prepare the journal entries to record the following transactions. (1) The issuance of the bonds on January 1, 2017. (2) Accrual of interest and amortization of the premium on December 31, 2017. (3) The payment of interest on January 1, 2018. (4) Accrual of interest and amortization of the premium on December 31, 2018. (b) Show the proper long-term liabilities balance sheet presentation for the liability for bonds payable at December 31, 2018. (c) Provide the answers to the following questions in narrative form. (1) What amount of interest expense is reported for 2018? (2) Would the bond interest expense reported in 2018 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?
2) Windsor Corporation issues $500,000 of 9%, 5-year bonds on January 1, 2017, at 104. If Windsor uses the effective-interest method in amortizing the premium, will the annual interest expense increase or decrease over the life of the bonds? Explain.
3) Benedict Company entered into an agreement to lease 12 computers from Haley Electronics, Inc. The present value of the lease payments is $186,300. Assuming that this is a capital lease, what entry would Benedict Company make on the date of the lease agreement?