Chapter 8
Non-Current Liabilities
421
AP-12B (
2
4
5
)
Phillips Corporation is planning to expand into a new product line. To do this, the company
has decided to issue $200,000 worth of five-year, 6% bonds with interest paid annually.
On June 1, 2016, the company completed all the necessary paperwork and is now ready
to issue the bonds. The market rate on the date of issuance is 5%. Use the effective interest
method to amortize any premiums/discounts.
Required
Record the journal entries for the following items. Round all amounts to the nearest whole
dollar.
a) The issuance of the bond on June 1, 2016 (Hint: This will require the calculation of the
premium/discount).
b) The necessary adjusting entries at the company’s December 31, 2016 year-end.
c) The payment of interest on May 31, 2017.
d) The retirement of the bonds on June 1, 2021 (assume interest has already been paid).
Date
Account Title and Explanation
Debit
Credit
