Question - Reed Gershwind Corporation issued $800,00 of 12% face value bonds for $851,705.70. The bonds were dated and issued on April 1,2016, are due March 31, 2020, and pay interest semiannually on September 30, and March 31. Reed sold the bonds to yield 10%.
Directions:
1) Prepare the bond interest expenses and premium amortization schedule using the straight-line method.
2) Prepare the bond interest expenses and premium amortization schedule using the effective interest method.
3) Prepare any adjusting journal entries for the end of the fiscal year, December 31, 2016, using the:
a) straight-line method of amortization
b) effective interest method of amortization
4) Assume the company retires the bonds on June 30, 2017, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using:
a) straight-line method of amortization
b) effective interest method of amortization.