Question

E14-4 (L01) EXCEL (Entries for Bond Transactions-Straight-Line) Celine Dion Company issued $600,000 of 10%, 20-year bonds on January 1, 2017, at 102. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight-line method of amortization for bond premium or discount Instructions Prepare the journal entries to record the following. (a) The issuance of the bonds. (b) The payment of interest and the related amortization on July 1, 2017 (c) The accrual of interest and the related amortization on December 31, 2017

Answer 1

Journal

Date	Account Title and Explanation	Debit	Credit
Jan 1, 2017	Cash	612,000
	Bonds payable		600,000
	Premium on bonds payable		12,000
July 1, 2017	Interest expense	29,700
	Premium on bonds payable	300
	Cash		30,000
Dec 31, 2017	Interest expense	29,700
	Premium on bonds payable	300
	Interest payable		30,000

Par value of bonds = $600,000

Cash proceeds from issue of bonds = 600,000 x 102%

= $612,000

Premium on bonds payable = Cash proceeds from issue of bonds - Par value of bonds

= 612,000 - 600,000

= $12,000

Semi annual interest payment = Par value of bonds x Interest rate x 6/12

= 600,000 x 10% x 6/12

= $30,000

Semi annual amortization of bonds premium = Premium on bonds payable/Semi annual periods

= 12,000/40

= $300

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