Prepare the journal entries to record the adjusting entries

Reference no: EM131921571

Problem

Nagol Corporation issued $6,000,000 of 8% bonds on September 1, 2007 at 106. The bonds are due on October 1, 2017. The interest is to be paid twice a year on March 1 and September 1. The bonds were sold to yield 7.15% effective annual interest. Nagol Corporation closes its books annually on December 31 and uses the effective interest method. Premiums and or discounts are amortized each time interest is paid or accrue

Instructions

(a) Prepare the journal entries to record the following:

i. The issuance of the bonds onSeptember 1, 2007

ii. The adjusting entries on December 31, 2007

iii. The payment of interest and the amortization of the premium/discount on March 1, 2008

b) Show the proper presentation for the liability section of Nagol Corporation's balance sheet on the December 31, 2007.

c) Compute. i.The interest expense to be reported in the income statement for the year ended December 31, 2007

ii. The total cost of borrowing over the life of the bond

(d) Assume that 50% of the bonds that were issued on September 1, 2007 were retired on April 1, 2008 at 103 plus accrued interest. Prepare the necessary journal entries to record the extinguishment of the debt along with any gain or loss.

Reference no: EM131921571

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