Problem
Serotta Corporation is planning to issue bonds with a face value of $480,000 and a coupon rate of 16 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 12 percent.
1) Record the issuance of the bonds on January 1.
2) Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year.
3) What bonds payable amount will Serotta report on this year's December 31 balance sheet?