Question

On January 1, 2020, Metlock Inc. sold 15% bonds having a maturity value of $720,000 for $770,648, which provides the bondholders with a 13% yield. The bonds are dated January 1, 2020, and mature on January 1, 2025, with interest payable on January 1 of each year. The company follows IFRS and uses the effective interest method.

A.) Prepare the journal entry at the date of issue.

B.) Prepare a schedule of interest expense and bond amortization for 2020 through 2023.

C.) Prepare the journal entries to record the interest payment and the amortization for 2020.

D.) Prepare the journal entries to record the interest payment and the amortization for 2022.

Answer 1

solution A:

Journal Entries - Metlock Inc.
Event	Particulars	Debit	Credit
1	Cash Dr	$720,000.00
	To Bonds payable	$50,648.00
	To Premium on Bonds payable		$770,648.00
	(To record issue of bond at premium)

Solution B:

Bond Amortization Table
Annual interest period	Cash interest paid	Bond Interest Expense	Premium Amortization	Unamortized Premium	Carrying Value
1-Jan-20				$50,648	$770,648
1-Jan-21	$108,000	$100,184	$7,816	$42,832	$762,832
1-Jan-22	$108,000	$99,168	$8,832	$34,000	$754,000
1-Jan-23	$108,000	$98,020	$9,980	$24,020	$744,020
1-Jan-24	$108,000	$96,723	$11,277	$12,743	$732,743

Journal Entries - Metlock Inc.
Date	Particulars	Debit	Credit
31-Dec-20	Interest Expense Dr	$100,184.00
	Premium on bond payable Dr	$7,816.00
	To Interest payable		$108,000.00
	(To record interest accrued and premium amortized)
1-Jan-21	Interest payable Dr	$108,000.00
	To Cash		$108,000.00
	(To record interest payment)

Solution D:

Journal Entries - Metlock Inc.
Date	Particulars	Debit	Credit
31-Dec-22	Interest Expense Dr	$98,020.00
	Premium on bond payable Dr	$9,980.00
	To Interest payable		$108,000.00
	(To record interest accrued and premium amortized)
1-Jan-23	Interest payable Dr	$108,000.00
	To Cash		$108,000.00
	(To record interest payment)

Solution C: