On September 1, 2016 Rockwell Co. issued $2,000,000 of 20-year, 15% bonds, dated August 1, for $2,240,000 and one months' accrued interest of $25,000, (total cash paid $2,265,000). The bonds were purchased by IBM. Interest is payable semiannually on February 1 and August 1. You should credit Interest Expense for the one months' accrued interest. Rockwell will have to pay six months interest to the bondholder (investor).
Present the entries to record the following transactions for the current year on the books of the issuer-Rockwell Co.:
A. Issuance of the bonds.
B. Accrual of five months interest and amortization of bond premium for the year, on December 31, using the straight-line method.
C. Payment of the interest to the bondholders on Feb. 1, 2017.
Interest Expense
Interest Payable
Cash