Question

*E10.20 (L0 6) Adcock Company issued $600,000, 9%, 20-year bonds on January 1, 2020, at 103. Interest is payable annually on January 1. Adcock uses straight-line amortization for bond premium or discount. Instructions Prepare the journal entries to record the following. a. The issuance of the bonds. b. The accrual of interest and the premium amortization on December 31, 2020. c. The payment of interest on January 1, 2021. d. The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Answer 1

Journal

a	Jan. 1, 2020	Cash	618,000
		Bonds payable		600,000
		Premium on Bonds payable		18,000
b	Dec. 31, 2020	Interest expense	53,100
		Premium on bonds payable	900
		Interest payable		54,000
c	Jan. 1, 2021	Interest payable	54,000
		Cash		54,000
d	Dec. 31, 2039	Bonds payable	600,000
		Cash		600,000

Par value of bonds = $600,000

Issue price = 103

Cash receipts from issue of bonds = 600,000 x 103%

= $618,000

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

= 618,000 - 600,000

= $18,000

Annual interest payment = Par value of bonds x Interest rate

= 600,000 x 9%

= $54,000

Annual amortization of bond premium = Premium on bonds payable/Bond life

= 18,000/20

= $900

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