Question

The Shamrock Company issued $240,000 of 13% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds were issued at 101.

Prepare the journal entries for:

(a) January 1, (b) July 1, and (c) December 31.

Assume The Shamrock Company records straight-line amortization semiannually.

Answer 1

Answer

• Face value = $ 240000
• Issue Price = $ 240000 x 101/100 = $ 242,400
• Premium = $ 242400 – 240000 = $ 2400
• No of years = 5 years [1 Jan 2017 to 31 Dec 2021]
• No of interest payments = 5 x 2 = 10
• Journal entries

Date	Accounts title	Debit	Credit
01-Jan	Cash	$242,400
	Premium on Bonds Payable		$2,400
	Bonds Payable		$240,000
	(to record issuance)
01-Jul	Interest Expense	$15,360
	Premium on Bonds Payable ($2400 / 10)	$240
	Cash ($240000 x 13% x 6/12)		$15,600
	(to record #1 payment)
31-Dec	Interest Expense	$15,360
	Premium on Bonds Payable ($2400 / 10)	$240
	Interest Payable ($240000 x 13% x 6/12)		$15,600
	(to reocrd #2 payment)