Reference no: EM133000590

You have been engaged to audit the financial statements of Ellie's Shirt Co. for the year ended December 31, 2021. The company follows IFRS. In examining the books, you became concerned with the following item:

The bookkeeper made the following entry each year on December 31st to record interest expense on the bonds payable:

Account Title                Debit                 Credit
Interest expense        18,000
Cash                                                18,000

The bonds mature in 5 years, have a face value of $300,000 and pay a stated interest rate of 6%. They were issued at a premium of $12,988 on January 1, 2020 to yield an effective interest rate of 5%. Interest is paid annually each December 31.

From the correctly prepared amortization schedule, you obtain the following:
             
Date                            Interest expense               Amortization amount                Carrying Value
01-Jan-20                                                                                                      312,988
31-Dec-20                       15,649                            2,351                                  310,637
31-Dec-21                        15,532                           2,468                                  308,169

REQUIRED:

Problem 1: Prepare the journal entries that the company's bookkeeper would prepare in 2021, assuming the errors are discovered while the 2021 books are still open. Ignore any income tax effects.