Burr Motor Company, a manufacturer of small- to medium-sized electric motors, needs additional funds to market a revolutionary new motor. Burr has arranged for private placement of a $50,000, 5-year, 11% bond issue. Interest on these bonds is paid annually each year on August 31. The issue was dated and sold on September 1, 2018, for proceeds of $48,197.61 to yield 12%. Burr Motor Company has December 31 fiscal year-end. Required:
Burr Motor Company, a manufacturer of small- to medium-sized electric motors, needs additional funds to market a revolutionary new motor. Burr has arranged for private placement of a $50,000, 5-year, 11% bond issue. Interest on these bonds is paid annually each year on August 31. The issue was dated and sold on September 1, 2018, for proceeds of $48,197.61 to yield 12%. Burr Motor Company has December 31 fiscal year-end. Required:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Burr Motor Company, a manufacturer of small- to medium-sized electric motors, needs additional funds to market a revolutionary new motor. Burr has arranged for private placement of a $50,000, 5-year, 11% bond issue. Interest on these bonds is paid annually each year on August 31. The issue was dated and sold on September 1, 2018, for proceeds of $48,197.61 to yield 12%. Burr Motor Company has December 31 fiscal year-end.
Required:
|
1.
|
Prepare a bond interest expense and discount amortization schedule showing interest expense for each interest period using the effective interest method.
|
|
2.
|
Prepare
|
Transcribed Image Text:Burr Motor Company, a manufacturer of small-to medium-sized electric motors, needs additional funds to market a revolutionary new motor. Burr has arranged for private placement of a $50,000, 5-year, 11% bond issue. Interest on these
bonds is paid annually each year on August 31. The issue was dated and sold on September 1, 2018, for proceeds of $48,197.61 to yield 12%. Burr Motor Company has December 31 fiscal year-end.
Required:
1. Prepare a bond interest expense and discount amortization schedule showing interest expense for each interest period using the effective
interest method.
2. Prepare journal entries to record the issuance of the bonds and the interest entries for 2019 and 2020 using (a) the effective interest method
and (b) the straight-line method.
Transcribed Image Text:2a. Prepare journal entries to record the issuance of the bonds and the interest entries for 2019 and 2020 using the effective interest
method.
General Journal Instructions
All transactions on this page must be entered (except for post ref(s)) before you will check
My work feedback.
1
2
3
4
S
DATE
Sep. 1, 2018
GENERAL JOURNAL
ACCOUNT TITLE
Cash
Discount on Bonds Payable
Bonds Payable
PAGE 2018
POST. REF.
PAGE 2019
DEBIT
48,197.61
1,802.39
PAGE 2020
CREDIT
50,000.00
re a bond interest expense and discount amortization schedule showing interest expense for each
beriod using the effective interest method.
Instructions
Date
09/01/18
08/31/19
08/31/20
08/31/21
08/31/22
08/31/23
BURR MOTOR COMPANY
Bond Interest Expense and Discount Amortization Schedule
Effective Interest Method 11% Bonds Sold to Yield 12%
Cash Credit
$5,500.00
5,500.00
5,500.00
5,500.00
5,500.00
Interest Expense
Debit
$5,783.71
5,817.76
5,855.89
5,898.60
5,946.43
Unamortized
Discount Credit
$283.71
317.76
355.89
398.60
446.43
Book Value of
Bonds
$48,197.61
48,481.32
48,799.08
49,154.97
49,553.57
50,000.00
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