Question

Serotta Corporation is planning to issue bonds with a face value of $340,000 and a coupon rate of 8 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and also uses a premium account. Assume an annual market rate of interest of 4 percent (FV of $1, PV of S1, FVA of $1, and PVA of S) (Use the appropriate factor(s) from the tables provided. value: Required information .00 points 1. Provide the journal entry to record the issuance of the bonds January 1.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar amount.) View transaction list View journal entry worksheet No Date General jounral Debit Credit January 01 Cash Discount on bonds payable Bonds payable 2. Provide the journal entry to record the interest payment on March 31, June 30, September 30, and December 31 of this year. (If no entry is required for a transactionlevent, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar amount.) View transaction list View journal entry worksheet No Date General Journal Debit Credit March 31 Interest Expense Bond payable Cash Interest Expense Bond payable Cash September 30 Interest Expense Bond payable Cash December 31 Interest Expense Bond payable Cash

Answer 1

1. Journal entry to record the Issue of bonds is:

Year	Particulars	L.F	Debit ($)	Credit ($)
Jan-01	Cash		366,016
	Premium on Bonds Payable			26,016
	Bonds Payable			340,000
	(For bonds issued at premium)

Table value are based on:
n= 28
i= 1%
Cash Flow	Table Value	Amount	Present Value
Par (maturity value)	0.9235	340,000	313,984
Interest (annuity)	7.6517	6,800	52,031
Price of Bond			366,016

2. Journal entries to record Interest payments:

Year	Particulars	L.F	Debit ($)	Credit ($)
Mar-31	Interest Expense		3,660
	Premium on Bonds payable		3,140
	Cash			6,800
	(For Interest Paid)
Jun-30	Interest Expense		3,629
	Premium on Bonds payable		3,171
	Cash			6,800
	(For Interest Paid)
Sep-30	Interest Expense		3,597
	Premium on Bonds payable		3,203
	Cash			6,800
	(For Interest Paid)
Dec-31	Interest Expense		3,565
	Premium on Bonds payable		3,235
	Cash			6,800
	(For Interest Paid)

3. Bonds payable on December 31 balance sheet will be:

Bonds Payable 340,000

Add: Premium on Bonds Payable 13,266

Total Bonds Payable 353,266