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Prepare a bond interest expense and discount amortization

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Problem - Effective Interest versus Straight-Line Discount Amortization - 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, 2019, 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 2020 and 2021 using (a) the effective interest method (b) the straight-line method.

Reference no: EM132888821

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