Question

Answer 1

Journal entry to record the Bond purchase is:

Year	Particulars	L.F	Debit ($)	Credit ($)
2017
Jan-01	Bond Receivable		487,000
	Premium on Bond Receivable		18,461
	Cash			505,461
	(for cash paid for 11% 5 year bonds)

Amortization Table is:

	A	B	C	D	E
Date	Cash Received	Interest Income	Premium amortization	Premium	Carrying Value at end of period
	487,000*11%	E*10%	A-B		E+C
01-01-2017				$18,460.66	$505,460.66
31-12-2017	$53,570.00	$50,546.07	$3,023.93	$15,436.73	$502,436.73
31-12-2018	$53,570.00	$50,243.67	$3,326.33	$12,110.40	$499,110.40
31-12-2019	$53,570.00	$49,911.04	$3,658.96	$8,451.44	$495,451.44
31-12-2020	$53,570.00	$49,545.14	$4,024.86	$4,426.58	$491,426.58
31-12-2021	$53,570.00	$49,142.66	$4,426.58	$0.00	$487,000.00

Journal entry to record interest received is:

Year	Particulars	L.F	Debit ($)	Credit ($)
2017
Dec-31	Cash		53,570
	Premium on Bonds Receivable			3,024
	Interest Income			50,546
	(For interest received)
Year	Particulars	L.F	Debit ($)	Credit ($)
2018
Dec-31	Cash		53,570
	Premium on Bonds Receivable			3,326
	Interest Income			50,244
	(For interest received)

Journal entry to record redemption of bonds at maturity is:

Year	Particulars	L.F	Debit ($)	Credit ($)
2022
Jan-01	Cash		487,000
	Bond Receivable			487,000
	(For bond matured)

Journal entry by Straight line will be:

Year	Particulars	L.F	Debit ($)	Credit ($)
2017
Jan-01	Bond Receivable		487,000
	Premium on Bond Receivable		18,461
	Cash			505,461
	(for cash paid for 11% 5 year bonds)
Year	Particulars	L.F	Debit ($)	Credit ($)
2017
Dec-31	Cash (487,000*11%)		53,570
	Premium on Bonds Receivable (18,461/5)			3,692
	Interest Income			49,878
	(For interest received)
Year	Particulars	L.F	Debit ($)	Credit ($)
2018
Dec-31	Cash		53,570
	Premium on Bonds Receivable			3,692
	Interest Income			49,878
	(For interest received)
Year	Particulars	L.F	Debit ($)	Credit ($)
2022
Jan-01	Cash		487,000
	Bond Receivable			487,000
	(For bond matured)

Total interest income reported is:

Effective Interest Method	Straight Line method
$50,546	$49,878
$50,244	$49,878
$49,911	$49,878
$49,545	$49,878
$49,143	$49,878
$249,389	$249,389