In each of the following independent cases the company closes its books on December 31.
- Lime Co. sells $600,000 of 9% bonds on April 1, 2017. The bonds pay interest on October 1 and April 1. The due date of the bonds is October 1, 2021. The bonds yield 8%. Give entries through December 31, 2018.
- Lemon Co. sells $1,000,000 of 10% bonds on August 1, 2017. The bonds pay interest on February 1 and August 1. The due date of the bonds is August 1, 2020. The bonds yield 12%. On October 1, 2018, Lemon Co. buys back $200,000 worth of bonds for $218,000 (includes accrued interest). Give entries through February 1, 2019.
Instructions
For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end.
