Homework Answers
| WORKING NOTES : 1 | |||||
| Par Value of the bonds = | $90,000 | ||||
| Issue price of the bond ($600,000 X 112%) | $1,00,800 | ||||
| Premium on issue of Bonds | $10,800 | ||||
| Coupon amount @ 6% = | $5,400 | ||||
| Life of the Bonds = | 10 Years | ||||
| Period of The Bonds (10 Years X 2 payment per year) | 20 Period | ||||
| Premium Amortized over 20 Periods ($ 10,800 / 20 Years) | $540 | Per Periods | |||
| WORKING NOTES : 2 | |||||
| CALCULATION OF INTEREST EXPENES PER PERIODS | |||||
| Coupon Amount Per year | $5,400 | ||||
| Less : Amortization value | $540 | ||||
| Interest Expenses per year | $4,860 | ||||
| SOLUTION : 1 | |||||
| Journal Entries | |||||
| Date | Account Title and explanation | Debit | Credit | ||
| 2018 , Jan 01 | Cash | $ 1,00,800 | |||
| Bonds Payable | $ 90,000 | ||||
| Premium on issue of Bonds | $ 10,800 | ||||
| ( Record the issuance of the bonds) | |||||
| SOLUTION : 2 | |||||
| Journal Entries | |||||
| Date | Account Title and explanation | Debit | Credit | ||
| 2018, July 01 | Interest Expenses | $ 4,860 | |||
| Premium on Issue on Bonds | $ 540 | ||||
| Cash | $ 5,400 | ||||
| (Record the payment of interest expenses ) | |||||
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