Question

Presented below are selected transactions on the books of Whispering Corporation.

May 1, 2020		Bonds payable with a par value of $937,200, which are dated January 1, 2020, are sold at 105 plus accrued interest. They are coupon bonds, bear interest at 12% (payable annually at January 1), and mature January 1, 2030. (Use interest expense account for accrued interest.)
Dec. 31		Adjusting entries are made to record the accrued interest on the bonds, and the amortization of the proper amount of premium. (Use straight-line amortization.)
Jan. 1, 2021		Interest on the bonds is paid.
April 1		Bonds with par value of $374,880 are called at 101 plus accrued interest, and redeemed. (Bond premium is to be amortized only at the end of each year.)
Dec. 31		Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.

Prepare journal entries for the transactions above.

Account Titles and Explanation Debit Credit Date May 1, 2020 Cash 984060 Bonds Payable 937,200 Premium on Bonds Payable 9372 Interest Expense 37488 Dec 31, 2020 Interest Expense 93720 Interest Payable 93720 (To record the interest) Premium on Bonds Payable 646 Interest Expense 646 (To amortize the premium) Jan. 1, 2021 Interest Payable 93720 Cash 93720 Apr. 1, 2021 Bonds Payable 374,880 Interest Expense 11246 Premium on Bonds Payable 3393 Cash 388001 Gain on Redemption of Bonds 1518 Dec 31, 2021 Interest Expense 67478 Interest Payable 67478 (To record the interest) Premium on Bonds Payable Interest Expense 679 (To amortize the premium)

Answer 1

Credit Debit $1,021,548 $937,200 $46,860 $37,488 $112,464 Date Account Titles and Explanations May 1, 2020 Cash Bonds Payable Premium on Bonds Payable Interest Expenses (To record sale of bond with interest) December 31, 2020 Interest Expense Interest Payable (To record the Interest) Premium on Bonds Payable Interest Expense (To amortize the premium) January 1, 2021 Interest Payable Cash (Paid interest on bond) $112,464 $3,232 $3,232 $112,464 $112,464 April 1, 2021 Bonds Payable $374,880 $11,246 Interest Expense [($374880*12%) *3/12) Premium on Bonds Payable ($46860*($374880 / $937200) * (105 / 116)] = $16967 $16,967 Cash $378,629 $24,464 Gain on Redemption of Bonds (To record call of bond and redemption) December 31, 2021 Interest Expense ($937200 - $374880) *12% Interest Payable (To record the Interest) $67,478 $67,478

Premium on Bonds Payable [($46860*12/116)*($562320/$937200]+[($46860 *3/116)*($374880/$937200)] $3,394 $3,394 Interest Expense (To amortize the premium) Workings Bonds payable with a par value of $937200, which are dated January 1, 2020, are sold at 105 plus accrued interest $937200 * 1.05 = $984060 Total sale for bond Annual interest = $937200 * 12% = $112464 Accrued interest = $112464 * 4/12 = $37488 Total sale = $984060 + $37488 = $1021548 120 month term - 4 months expired upon issuance - 116 months remaining Premium = $937200 *.05 = $46860 monthly amortization = $46860 / 116 months = $404 (Rounded) $404 monthly amortization x 8 months outstanding = $3232