Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 96

(Supplement 10A) Recording Bond Issuance and Interest Payments (Straight-Line Amortization)
Southwest Corporation issued bonds with the following details:

The annual accounting period ends December 31. The bonds were issued at 104 on January 1, 2012, when the market interest rate was 8 percent. Assume the company uses straight-line amortization and adjusts for any rounding errors when recording interest expense in the final year.
Required:
1. Compute the issue price of the bonds in dollars (show computations).
TIP: The issue price typically is quoted at a percentage of face value.
2. Give the journal entry to record the issuance of the bonds.
3. Give the journal entries to record the payment of interest on December 31, 2012 and 2013.
4. How much interest expense would be reported on the income statements for 2012 and 2013 Show how the liability related to the bonds should be reported on the balance sheets at December 31, 2012 and 2013.