Question

Apply the Straight-Line Method of Amortizing Bond Discount and Bond Premium 7. In the Cromwell Inc. example, the company sold $100,000, 5-year, 10% bonds on January 1, 2017, for $98,000. Interest is payable on January 1. The $2,000 bond discount ($100,000 - $98,000) amortization is $400 ($2,000 + 5) for each of the five amortization periods. a. The entry to record the accrual of bond interest and the amortization of bond discount on the first interest date (December 31) is: b. Continuing the Cromwell Inc. example, assume the bonds are sold for $102.000. rather than $98,000. This results in a bond premium of $2,000 ($102,000 - $100,000). The premium amortization for each interest period is $400 ($2,000 5). The entry to record the first accrual of interest on December 31 is:

Answer 1

a) Journal entry

Date	account and explanation	Debit	Credit
Dec 31	Interest expense	10400
	Discount on bonds payable		400
	Interest payable (100000*10%)		10000

b) Journal entry

Date	account and explanation	Debit	Credit
Dec 31	Interest expense	9600
	Premium on bonds payable	400
	Interest payable (100000*10%)		10000