Long-Term Liabilities

Lorance Corporation issued $400,000, 7%, 20-year bonds on January 1, 2020, for $360,727. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1. Lorance uses the effecte-interest method to amortize bond premium or disocunt.

Instructions

Prepare the journal entries to record the following.

1. The issuance of the bonds
2. The accrual of interest and the discount amortization on December 31, 2020
3. The payment of interest on January 1, 2021..

Solution