Question

Swanson Corporation issued $7,400,000 of 20-year, 8 percent bonds on April 1, 2013, at 102. Interest is due on March 31 and September 30 of each year, and all of the bonds in the issue mature on March 31, 2033. Swanson's financial year ends on December 31. Prepare the following journal entries: a. Prepare the journal entry at April 1, 2013, to record the issuance of the bonds. (Omit the "S" sign in your response.) Date General Journal Debit Credit Apr. 1, 2013 Cash Premium on bonds payable Bond payable b. Pr the journal entry at September 30, 2013, to pay interest and to amortize the bond premium. (Omit the "$" sign in your response.) Date General Journal Debit Credit Sept. 30, 2013 Bond interest expense Premium on bonds payable Cash c. Prepare the journal entry at March 31, 2033, to pay interest, amortize the bond premium, and retire the bonds at maturity (make two separate entries). (Omit the "S" sign in your response.) Date General Journal Debit Credit Mar. 31, 2033 Bond interest payable Bond interest expense Premium on bonds payable Cash ID Mar. 31, 2033 Bonds payable Cash

Answer 1

Premium on bond issue is = (Issue price of bonds - Par value of bonds) Premium on bond issue is = ((7400000*102%)-7400000) Premium on bond issue is = $ 148,000/. a) Credit $ Debit $ 75,48,000 Date Account Title & Explanation 01-Apr-13 Cash (7400000*102%) To Bonds Payable To Premium on Bonds Payable (Entry for issue of bonds at premium) 74,00,000 1,48,000 Assuming Premium is amortized over bonds life, Semi annual premium amortization is as below Semi annual premium amortization is = (148000/(20*2)) Semi annual premium amortization is = $ 3,700/. b) Credit $ Date Account Title & Explanation 30-Sep-13 Bond interest expense Premium on bonds payable To Cash (7400000*8%*(6/12)) (Entry for Payment of first semi annual interest) Debit $ 2,99,700 3,700 2,96,000 Accrued interest for 3 months in 2022 (From October to December 2022) is as below Accrued interest is = (7400000*8%*(3/12) Accrued interest is = $ 148,000/- Credit $ Date Account Title & Explanation Debit $ 31-Mar-33 Bonds Interest payable 1,48,000 Bond interest expense 1,44,300 Premium on bonds payable 3,700 To Cash (7400000*8%+(6/12)) (Entry for Payment of interest and amortization of Bond premium) 2,96,000 74,00,000 31-Mar-33 Bonds Payable To Cash (Entry for retirement of bonds at Maturity) 74,00,000