Chapter 8
Non-Current Liabilities
423
AP-14B (
4
5
)
On May 1, 2016, Ezzy Company issued a six-year bond worth $400,000 with an interest rate
of 8% per annum. Interest is to be paid semi-annually on October 31 and April 30. At the time
of the issuance, the market interest rate was 6%. Ezzy Company amortizes any premium or
discount using the effective interest method.
Required
a) Calculate the bond issue price and the resulting premium or discount.
b) Prepare journal entries to record the following bonds payable transactions.
1) Issuance of bonds on May 1, 2016.
2) Payment of interest and amortization of premium on October 31, 2016.
3) Accrual of interest and amortization of premium on December 31, 2016, which is the
company’s year-end.
4) Payment of interest and amortization of premium on April 30, 2017.
5) Redemption of the bond for $406,000 on May 1, 2021 (one year before maturity).
Date
Account Title and Explanation
Debit
Credit
