Question

P10-8A, Prepare journal entries to record issuance of bonds, interest, and straight-line amortization, and balance sheet presentation. Yung Corporation sold $2,000,000 7% 5 -year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on January 1. Yung Corporation uses the straight-line method to amortize bond premium or discount. Instructions: (a) Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2017, assuming that the bonds sold at 102 Jan 1 Account title Account title Account title - Amount Amount Amount Dec 31 Account title Account title Account title Amount Amount Amount (b) Prepare journal entries as in part (a) assuming that the bonds sold at Jan 1 Account title Account title Account title Amount Amount Amount Dec 31 Amount Account title Account title Account title Amount Amount (C) Show the balance sheet presentation for the bond issue at December 31, 2017, using (1) the 102 selling price Current Liabilities Account title Amount Long-term Liabilities Account title Account title Amount Amount Formula (2) the 97 selling price. Current Liabilities Account title Amount Long-term Liabilities Account title Account title Amount Amount Formula

Answer 1

Requirement (a): At 102

Date	Account title and explanation	Debit	Credit
Jan 1, 2017	Interest payable (2,000,000 x 1.02)	$2,040,000
	Bonds payable		$2,000,000
	Premium on bonds payable		$40,000
	[To record issuance of bonds payable]
Dec 31,2017	Interest expense	$132,000
	premium on bonds payable (40,000/5)	$8,000
	Interest payable (2,000,000 x 7%)		$140,000
	[To record interest expense]

Requirement (b): At 97

Date	Account title and explanation	Debit	Credit
Jan 1, 2017	Interest payable (2,000,000 x 0.97)	$1,940,000
	Discount on bonds payable	$60,000
	Bonds payable		$2,000,000
	[To record issuance of bonds payable]
Dec 31,2017	Interest expense	$152,000
	Interest payable (2,000,000 x 7%)		$140,000
	Discount on bonds payable (60,000/5)		$12,000
	[To record interest expense]

Requirement (c):

i.at 102

Balance Sheet (Partial)
For the year ended December 31,2017
Current liabilities:
Interest payable		$140,000
Long-term liabilities:
Bonds payable	$2,000,000
Premium on bonds payable (40,000-8,000)	$32,000
Carrying value		$2,032,000

ii.At 97

Balance Sheet (Partial)
For the year ended December 31,2017
Current liabilities:
Interest payable		$140,000
Long-term liabilities:
Bonds payable	$2,000,000
Premium on bonds payable (60,000-12,000)	($48,000)
Carrying value		$1,952,000