Question

On May 1, 2014 Peter Tools issued bonds payable with a face value of $1,400,000 at 104 plus accrued interest. They are registered bonds dated Jan 1, 2014, bear interest at 9% payable semiannually on Jan 1 and July 1, and mature Jan 1, 2024. The company uses straight-line amortization. Write the entries for 2014 and 2015

Answer 1

SOLUTION:

Date	Particulars	Debit	Credit
May 1, 2014	Cash ((1,400,000 * 104%) + 42,000)	1,498,000
	Bonds Payable		1,400,000
	Premium on Bonds Payable [(1,400,000*104%) - 1,400,000]		56,000
	Interest Expense ((9% * 1,400,000 * 4/12 months)		42,000
July 1, 2014	Interest Expense	62,034
	Premium on Bonds Payable ((56,000 * 2/116))	966
	Cash (1,400,000 * 9% * 6/12 months)		63,000
Dec 31 ,2014	Interest Expense	60,103
	Premium on Bond Payable (56,000 * 6/116)	2,897
	Interest Payable ((1,400,000 * 9% * 6/12 months))		63,000
July 1, 2015	Interest Expense	60,103
	Premium on Bond Payable (56,000 * 6/116)	2,897
	Interest Payable ((1,400,000 * 9% * 6/12 months))		63,000
Dec 31 ,2015	Interest Expense	60,103
	Premium on Bond Payable (56,000 * 6/116)	2,897
	Interest Payable ((1,400,000 * 9% * 6/12 months))		63,000