Chapter 8
Non-Current Liabilities
422
AP-13B (
2
4
5
)
Watson Corporation is planning to expand into a new product line. To complete the
expansion, the company has decided to issue $200,000 worth of five-year, 3% bonds with
interest paid annually.
On June 1, 2016, the company issued the bonds. The market rate on the date of issuance was
4%. 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
