Question

Exercise 9-74
Using a Premium Amortization Table (Straight Line)

For Dingle Corporation, the following amortization table was prepared when $400,000 of 5-year, 7% bonds were sold on January 1, 2020, for $420,000.

Period	Cash Payment (Credit)	Interest Expense (Debit)	Premium on Bonds Payable (Debit)	Premium on Bonds Payable Balance	Carrying Value
At issue				$20,000	$420,000
06/30/20	$14,000	$12,000	$2,000	18,000	418,000
12/31/20	14,000	12,000	2,000	16,000	416,000
06/30/21	14,000	12,000	2,000	14,000	414,000
12/31/21	14,000	12,000	2,000	12,000	412,000
06/30/22	14,000	12,000	2,000	10,000	410,000
12/31/22	14,000	12,000	2,000	8,000	408,000
06/30/23	14,000	12,000	2,000	6,000	406,000
12/31/23	14,000	12,000	2,000	4,000	404,000
06/30/24	14,000	12,000	2,000	2,000	402,000
12/31/24	14,000	12,000	2,000	0	400,000

Required:

1. Prepare the entry to recognize the issuance of the bonds on January 1, 2020.

2020 Jan. 31	Cash
	Bonds Payable
	Premium on Bonds Payable
	Record issuance of bonds at premium

Feedback

1. When bonds are issued, any premium or discount is recorded in a separate valuation account.

2. Prepare the entry to recognize the first interest payment on June 30, 2020.

2020 June 30	Interest Expense
	Premium on Bonds Payable
	Cash
	Record interest expense

Feedback

2. An amortization table helps calculate the proper amortization of bond premium or discount. They are particularly helpful when the effective interest rate method is used; however, this problem amortizes the premium using the straight-line method.

3. Determine what interest expense for this bond issue Dingle will report in its 2021 income statement.
$

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3. Any premium or discount is amortized to interest expense over the life of the loan.

4. Indicate how these bonds will appear in Dingle's December 31, 2023 balance sheet.

Dingle Corporation
Balance Sheet (partial)
December 31, 2023
Bonds payable:
7% Bonds, due 2024	$
Add: Unamortized Premium on Bonds Payable		$

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Answer 1

1.

2020 Jan 31	Cash	420000
	Bonds Payable		400000
	Premium on bonds payable		20000

2.

2020 June 30	Interest expense	12000
	Premium on bonds payable	2000
	Cash		14000

3. $24,000 [ 12000 +12000]

4.

Dingle Corporation
Balance Sheet (partial)
December 31, 2023
Bonds payable:
7% Bonds, due 2024	400000
Add: Unamortized Premium on Bonds Payable	4000	404000