Question

13. On 4/1/16 Zoe Corp issues $500,000, 12%, 10 year bonds with interest payable every 1 and 7/1. The bonds are sold to yield 10%. The price of the bonds on issue date is $562,311. The bonds are dated 1/1/16 and mature 1/1/26. Zoe uses straight-line amortization. (USE THE PRICE GIVEN, DO NOT CALCULATE PRICE) 13.1 Record the bond issuance on 4/1/16 1B.2 Record the interest payment on 7/1/16 1B.3 Record the interest accrual on 12/31/16 18.4 Record the interest payment on 1/1/17

Answer 1

Solution:

Date	Account Titles and Explanation	Debit	Credit
4/1/2016	Cash	$ 562,311.00
	Premium on Bonds Payable		$           62,311.00
	Bonds Payable		$         500,000.00
	(To record bond issued at premium )
7/1/2016	Interest Expense	$    11,884.45
	Premium on Bonds Payable($62311 / 20 periods)	$       3,115.55
	Cash(500,000*12%*3 Months/12 Months)		$           15,000.00
	( To record interest expense)
12/31/2016	Interest Expense	$    26,884.45
	Premium on Bonds Payable($62311/20 periods)	$       3,115.55
	Interest Payable(500,000*12%*6 Months/12 Months)		$           30,000.00
	( To record interest expense payable)
1/1/2017	Interest Payable(500,000*12%*6 Months/12 Months)	$    30,000.00
	Cash		$           30,000.00
	( To record interest expense)

Notes:

1) On 7/1/16, Interest is calculated for 3 Months only from April 1st to July 1st, because bonds are issued on 4/1/16 even though dated on 1/1/16

2) Premium amortization on 7/1/16 should be calculated for 6 months because bonds are dated on 1/1/16.

3) Premium amortization will be done in 20 periods( 10 years, twice a year)