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Determine the total cost of borrowing over the life of bond

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Reference no: EM132611100

On July 1, 2014, Kingston Company issued $3,600,000, 9%, 10-year bonds at $3,375,680. This price resulted in an effective-interest rate of 10% on the bonds. Kingston uses the straight-line method to amortize bond premium or discount. The bonds pay Semi-annual interest July 1 and January 1.

Instructions: (Round all computations to the nearest dollar.)

Question (A) Prepare the journal entries to record the following transactions.

(1) The issuance of the bonds on July 1, 2014.

(2) Amortization table.

(3) a The accrual of interest and the amortization of the discount on December 31, 2014.

b. Entry for payment of interest on 1 January.

c. The payment of interest and the amortization of the discount on July 1, 2015, assuming no accrual of interest on June 30.

(4) The accrual of interest and the amortization of the discount on December 31, 2015.

Question (B) Show the proper balance sheet presentation.

Question (C) What amount of interest expense is reported for 2015?

Question (D) Determine the total cost of borrowing over the life of the bond.

Question (E) GKingston Corporation issued $400,000 of 10-year bonds at a discount. Prior to maturity, when the carrying value of the bonds was $390,000, the company retired the bonds at 98% of face value. Prepare the entry to record the redemption of the bonds.

Reference no: EM132611100

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