Question

Exercise 14-09 (Part Level Submission)

On June 30, 2020, Mountain Company issued $4,180,000 face value of 13%, 20-year bonds at $4,494,460, a yield of 12%. Ayayai uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31. Collapse question part (a) Prepare the journal entries to record the following transactions. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(1) The issuance of the bonds on June 30, 2020.

(2) The payment of interest and the amortization of the premium on December 31, 2020.

(3) The payment of interest and the amortization of the premium on June 30, 2021.

(4) The payment of interest and the amortization of the premium on December 31, 2021.

Answer 1

Date	Account Titles	Debit	Credit
June 30, 2020	Cash	4494460
	Bonds Payable		4180000
	Premium on bonds payable		314460
December 31, 2020	Interest expense	269668
	Premium on bonds payable	2032
	Cash		271700
June 30, 2021	Interest expense	269546
	Premium on bonds payable	2154
	Cash		271700
December 31, 2021	Interest expense	269416
	Premium on bonds payable	2284
	Cash		271700

Workings:

Semiannual interest date	Interest Payment [4,180,000* 13% *1/2]	Interest expense [Carrying value*12%*1/2]	Premium amortization [Expense - Payment]	Bond carrying balance [Previous year - Premium]
				4494460
December 31, 2020	271700	269668	2032	4492428
June 30, 2021	271700	269546	2154	4490273
December 31, 2021	271700	269416	2284	4487990
Total		808629.65	6470.35