Question

E14-10B (Entries for Bond Transactions) On January 1, 2017, Spalding Company sold 12% bonds having a maturity value of $1,000,000 for $1,075,814.74, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2017, and mature January 1, 2022, with interest payable December 31 of each year. Spalding Company allocates interest and unamortized discount or premium on the effective-interest basis.

Instructions

1. Prepare the journal entry at the date of the bond issuance.
2. Prepare a schedule of interest expense and bond amortization for 2017–2019.
3. Prepare the journal entry to record the interest payment and the amortization for 2017.
4. Prepare the journal entry to record the interest payment and the amortization for 2019.

Answer 1

Solution a:

Journal Entries - Spalding Company
Date	Particulars	Debit	Credit
1-Jan-17	Cash Dr	$1,075,814.74
	To Bond Payable		$1,000,000.00
	To Premium on Bond Payable		$75,814.74
	(To record issue of bond at premium)

Solution b:

Bond Amortization Table
Semiannual interest period end	Interest to be paid	Interest expense	Premium Amortization	Unamortized Premium	Bond Carrying Value
1-Jan-17				$75,814.74	$1,075,814.74
31-Dec-17	$120,000.00	$107,581.47	$12,418.53	$63,396.21	$1,063,396.21
31-Dec-18	$120,000.00	$106,339.62	$13,660.38	$49,735.84	$1,049,735.84
31-Dec-19	$120,000.00	$104,973.58	$15,026.42	$34,709.42	$1,034,709.42

Solution c:

Journal Entries - Spalding Company
Date	Particulars	Debit	Credit
31-Dec-17	Interest expense Dr	$107,581.47
	Premium on bond payable Dr	$12,418.53
	To Cash		$120,000.00
	(To record annual payment and premium amortization)

solution d:

Journal Entries - Spalding Company
Date	Particulars	Debit	Credit
31-Dec-19	Interest expense Dr	$106,339.62
	Premium on bond payable Dr	$13,660.38
	To Cash		$120,000.00
	(To record annual payment and premium amortization)