Question

6. On December 31, 2007, Bolden, Inc., sold at 102 a $500,000 issue of 10%

Bonds that mature in 20 years. Bond interest is payable on June 30 and

December 31. The firm uses the straight-line method of amortization.

REQUIRED:

1. Present all entries pertaining to the bonds for 2007 and 2008.

2. Prepare the entry to record the retirement of $200,000 of the bonds

At 105 on December 31, 2013 ( immediately after the interest payment

On that date).

Answer 1

Straight line premium amortization	(500000*2%)/(20*2)
Straight line premium amortization	10000/40
Straight line premium amortization	$250
A.
Record journal entry for 2007 and 2008
Date	General Journal	Debit	Credit
31-Dec-07	Cash (500,000*102%)	$510,000
	Premium on bonds payable (510000-500000)		$10,000
	Bonds payable		$500,000
	(To record issue of bonds)
30-Jun-07	Interest expense (25,000-250)	$24,750
	Premium on bonds payable	$250
	Cash (500,000*10%*6/12)		$25,000
	(To record interest expense for June)
31-Dec-07	Interest expense (25,000-250)	$24,750
	Premium on bonds payable	$250
	Cash (500,000*10%*6/12)		$25,000
	(To record interest expense for December)
B.
Premium on bonds payable (200000*10000/500000)	$4,000
Less: Bond amortized (250*6*2*200000/500000)	$1,200
Premium on bonds payable, Dec 2013	$2,800
Date	General Journal	Debit	Credit
31-Dec-13	Bonds payable	$200,000
	Premium on bonds payable	$2,800
	Loss on retirement on bonds payable (202800-210000)	$7,200
	Cash (200000*105%)		$210,000
	(To record bond retirement)