Constructive Retirement at Beginning of Year (Straight-Line Method)

Constructive Retirement at Beginning of Year (Straight-Line Method)

Assume the same facts as in E8-8 but prepare entries using straight-line amortization of bond discount or premium.

E8-8:

Constructive Retirement at Beginning of Year (Effective Interest Method)

Able Company issued $600,000 of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1. Prime Corporation purchased $400,000 of Able’s bonds from the original purchaser on January 1, 20X5, for $396,800. Prime owns 60 percent of Able’s voting common stock.

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