Question

Magna Company issued $400,000, 6%, 15-year bonds on December

31, 2017

at 97.

Interest is payable annually on December 31. Magna

uses the straight-line method to amortize bond premium or discount

.

Instructions

Prepare the journal entries to record the following events.

(a)

The issuance of the bonds.

(b)

The payment of interest and the discount amortization on December

31, 2018.

(c)

The redemption of the bonds at maturity, assuming interest for the

last interest period has been paid and recorded.

prepare the stairght line method chart

Answer 1

Solution:

Journal Entries - Blue Company
Date	Particulars	Debit	Credit
31-Dec-17	Cash Dr	$388,000.00
	Discount on bond payable Dr	$12,000.00
	To Bond Payable		$400,000.00
	(To record issue of bond at premium)
31-Dec-18	Interest expense Dr	$24,800.00
	To Cash		$24,000.00
	To Discount on bond payable		$800.00
	(To record semiannual payment and premium amortization)
31-Dec-31	Bond Payable Dr	$400,000.00
	To Cash		$400,000.00
	(To record bond repayment at maturity)

Bond Amortization Table
Semiannual interest period end	Interest to be paid	Interest expense	Discount Amortization	Unamortized Discount	Bond Carrying Value
31-Dec-17				$12,000	$388,000
31-Dec-18	$24,000	$24,800	$800	$11,200	$388,800
31-Dec-19	$24,000	$24,800	$800	$10,400	$389,600
31-Dec-20	$24,000	$24,800	$800	$9,600	$390,400
31-Dec-21	$24,000	$24,800	$800	$8,800	$391,200
31-Dec-22	$24,000	$24,800	$800	$8,000	$392,000
31-Dec-23	$24,000	$24,800	$800	$7,200	$392,800
31-Dec-24	$24,000	$24,800	$800	$6,400	$393,600
31-Dec-25	$24,000	$24,800	$800	$5,600	$394,400
31-Dec-26	$24,000	$24,800	$800	$4,800	$395,200
31-Dec-27	$24,000	$24,800	$800	$4,000	$396,000
31-Dec-28	$24,000	$24,800	$800	$3,200	$396,800
31-Dec-29	$24,000	$24,800	$800	$2,400	$397,600
31-Dec-30	$24,000	$24,800	$800	$1,600	$398,400
31-Dec-31	$24,000	$24,800	$800	$800	$399,200
31-Dec-32	$24,000	$24,800	$800	$0	$400,000