On January 1, 2016, Knorr Corporation issued $1,000,000 of 9%, 5-year bonds dated January 1, 2016. The bonds pay interest annually on December 31. The bonds were issued to yield 10%. Bond issue costs associated with the bonds totaled $18,000. Required: Prepare the journal entries to record the following: January 1, 2016 Sold the bonds at an effective rate of 10% December 31, 2016 First interest payment using the effective interest method December 31, 2016 Amortization of bond issue costs using the straight-line method December 31, 2017 Second interest payment using the effective interest method December 31, 2017 Amortization of bond issue costs using the straight-line method

We are to prepare the journal entries for the following:

January 1, 2016 Sold the bonds at an effective rate of 10%

December 31, 2016 First interest payment using the effective interest

method

December 31, 2016 Amortization of bond issue costs using the straight-

line method

December 31, 2017 Second interest payment using the effective interest

method

December 31, 2017 Amortization of bond issue costs using the straight-line

method

The Journal entries can be prepared in an illustrative table format as shown below:

Date Account Title Debit ($) Credit ($)

2016 Cash 962091.83

Jan 1 Discount on bonds payable

$ (1000000 - 962091.83) 37908.17

Bond Payable 1000000.00

TO record issue of bonds

Jan 1 Deferred Bond Issue 18000.00

Cash 18000.00

2016 Interest expense

(962091.83 * 10%) 96209.18

Dec 31 Discount on bond payable 6209.18

Cash (1000000 * 9%) 90000.00

TO record the payment of semi-annual interest

2016 Interest expense

(18000 + 5 years) 3600.00

Dec 31 Deferred bond issue costs 3600.00

TO record the amortization of bonds on issue costs

2017 Interest expense

(962091.83 + 6209.18) * 10% 96830.10

Dec 31 Discount on bond payable 6830.10

Cash (1000000 * 9%) 90000.00

TO record the payment of semi-annual interest

2017 Interest expense

(18000 + 5 years) 3600

Dec 31 Deferred bond issue costs 3600.00

TO record the amortization of bonds on issue costs