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Question & Answer: At the end of 2015, Majors Furniture Company failed to accrue $72,000 of interest expense that accrued during the last five months of 2015 on bonds…..

At the end of 2015, Majors Furniture Company failed to accrue $72,000 of interest expense that accrued during the last five months of 2015 on bonds payable. The bonds mature in 2029. The discount on the bonds is amortized by the straight-line method. The following entry was recorded on February 1, 2016, when the semiannual interest was paid Interest expense 86,400 Discount on bonds payable Cash 1,920 84,480 Required: Prepare any jo discovered. Also, prepare any adjusting entry at December 31, 2016, related to the situation described. (Ignore income taxes.) (Do not round your intermediate calculations. If no entry is required for a transaction/event, select No journal entry required in the first account field.)

At the end of 2015, Majors Furniture Company failed to accrue $72,000 of interest expense that accrued during the last five months of 2015 on bonds payable. The bonds mature in 2029. The discount on the bonds is amortized by the straight-line method. The following entry was recorded on February 1, 2016, when the semiannual interest was paid: Required: Prepare any journal entry necessary to correct the errors as of February 2, 2016 when the errors were discovered. Also, prepare any adjusting entry at December 31,2016, related to the situation described. (Ignore income taxes.) (Do not round your intermediate calculations. If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)

Expert Answer

Feb-02 Retained earnings ($86,400 – ($86,400/6*1)) $ 72,000
Interest expenses $ 72,000
Dec-31 Interest expenses ($86,400*5/6) $ 72,000
Discount on bonds payable ($1,920*5/6) $    1,600
Interest payable $ 70,400
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