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OURCES CALCULATOR PULLSCREEN PRINTER V ON BACK The Blue Company issued $330.000 of 7 bonds on January 1, 2017. The bonds are
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Answer #1

(a) $100 bonds are issued at $101.

Proceeds from bond issue = $330000 * 101 / 100 = $333300

Required journal entry is:

Date General Journal Debit Credit
January 1, 2017 Cash $333300
Bonds payable $330000
Premium on bonds payable $3300
(for bonds issued at premium)

(b) Under the straight line method, bond premium is amortized over the life of the bond. Here,

Bond premium = $3300, Life of the bond = 5 * 2 = 10 semi annual years

Straight line amortization of bond premium = $3300 / 10 = $330

Semi annual cash payment of interest = 7% * $330000 * 6 /12 = $11550

Interest expense under straight line method is:

Interest expense = Cash paid for interest - Premium

Interest expense = $11550 - $330 = $11220

Required journal entry is:

Date General Journal Debit Credit
July 1, 2017 Interest expense $11220
Premium on bonds payable $330
Cash $11550
(for semi annual bond interest payment and bond premium amortization)

(c) Journal entry on December 31 will be same as above entry:

Date General Journal Debit Credit
December 31, 2017 Interest expense $11220
Premium on bonds payable $330
Cash $11550
(for semi annual bond interest payment and bond premium amortization)
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