Solution:
a) The bond premium of $54,361 must be amortized to interest expense over the life of the bond. The amount of bond premium to be charged to interest expense each semi-annual period would be = market rate of interest x Book value of bond.The Interest paid amount will be $400,000 x 5% = $20,000, each semi-annual period. Difference in interest expense and amount paid will be amortized to premium on bonds .
Date | Description | Debit | Credit |
a) Dec 31 | Cash | $ 454,361 | 0 |
Premium On Bonds Payable | 0 | $ 54,361 | |
Bonds Payable | 0 | $ 400,000 | |
(To record issuance of bonds) | |||
b) June 30 | Bond Interest Expense | $ 18,174 | 0 |
Premium on Bonds Payable | $ 1,826 | 0 | |
Cash | 0 | $ 20,000 | |
(To record Semi-annual interest payment and premium amortization) | |||
c) Dec 31 | Bond Interest Expense | $18,101 | 0 |
Premium on Bonds Payable | $1,899 | 0 | |
Cash | 0 | $ 20,000 | |
(To record Semi-annual interest payment and premium amortization) |
Workings:
(A) | (B) | (C) | (D) | (E) | (F) | (G) |
Date |
Interest Payment (5% of face value) | Interest expense(4% of Book value) |
Amortization of bond premium (C)-(B) |
Credit Balance in bond premium account | Credit Balance in Bonds Payable account |
Book Value of the bonds (F)+(E) |
Dec 31 | 54,361 | 400,000 | 454,361 | |||
June,30 | 20,000 | 18,174 | (1,826) | 52,535 | 400,000 | 452,535 |
Dec 31 | 20,000 | 18,101 | (1,899) | 50,636 | 400,000 | 450,636 |
Business Course * Return to course ! My Subscriptions Yosimar Huerta Question 4 Partially correct Mark...
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