Part A On January 1, 2022, East Pacific Enterprises issued 9%, 10-year bonds with a face amount of $1,350,000 for cash $1,265,880. Interest is payable semiannually on June 30 and December 31. The bonds were issued for an effective interest rate of 10%. Required: a. Prepare an amortization table for the first 3 payment periods using the effective interest method in the following format (rounded to the nearest two decimal place): (4 marks) Semi-annual (A) Interest Period-end (B) (C) (D) (E) Cash Bond Discount Interest Interest Amortization Discount Unamortized Carrying Amount Date Paid Expense b. Prepare the journal entry (without explanation) to record the issuance of the bonds on January 1, 2022. (3 marks) c. Prepare the journal entry (without explanation) to record the third interest payment on June 30, 2023. (3 marks) d. Describe four characteristics of the effective-interest method of accounting for bonds. (4 marks)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Part A
On January 1, 2022, East Pacific Enterprises issued 9%, 10-year bonds with a face amount of
$1,350,000 for cash $1,265,880. Interest is payable semiannually on June 30 and December 31.
The bonds were issued for an effective interest rate of 10%.
Required:
a. Prepare an amortization table for the first 3 payment periods using the effective interest
method in the following format (rounded to the nearest two decimal place):
(4 marks)
Semi-annual (A)
Interest
Period-end
(B)
(C)
(D)
(E)
Cash
Bond
Discount
Interest
Interest
Amortization Discount
Unamortized Carrying
Amount
Date
Paid
Expense
b. Prepare the journal entry (without explanation) to record the issuance of the bonds on
January 1, 2022.
(3 marks)
c. Prepare the journal entry (without explanation) to record the third interest payment on June
30, 2023.
(3 marks)
d. Describe four characteristics of the effective-interest method of accounting for bonds.
(4 marks)
Transcribed Image Text:Part A On January 1, 2022, East Pacific Enterprises issued 9%, 10-year bonds with a face amount of $1,350,000 for cash $1,265,880. Interest is payable semiannually on June 30 and December 31. The bonds were issued for an effective interest rate of 10%. Required: a. Prepare an amortization table for the first 3 payment periods using the effective interest method in the following format (rounded to the nearest two decimal place): (4 marks) Semi-annual (A) Interest Period-end (B) (C) (D) (E) Cash Bond Discount Interest Interest Amortization Discount Unamortized Carrying Amount Date Paid Expense b. Prepare the journal entry (without explanation) to record the issuance of the bonds on January 1, 2022. (3 marks) c. Prepare the journal entry (without explanation) to record the third interest payment on June 30, 2023. (3 marks) d. Describe four characteristics of the effective-interest method of accounting for bonds. (4 marks)
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