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On January 1, James Corporation issued $400,000, 6%, 5-year bonds at 103. Interest is payable semiannually...

On January 1, James Corporation issued $400,000, 6%, 5-year bonds at 103. Interest is payable semiannually on July 1 and January 1. Straight-line amortization method is used.

Instructions

Prepare journal entries to record the

(a)   Issuance of the bonds.

(b)   Payment of interest on July 1, assuming no previous accrual of interest. Need to also show the entry of the amortization of the premium to interest.

(c) Accrual of interest on December 31. Need to also show the entry of the amortization of the premium to interest

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Answer #1

Journal entry

Date account and explanation Debit Credit
Jan 1 Cash (400000*1.03) 412000
Bonds payable 400000
Premium on bonds payable 12000
July 1 Interest expense 10800
Premium on bonds payable (12000/10) 1200
Cash (400000*3%) 12000
Dec 31 Interest expense 10800
Premium on bonds payable 1200
Interest payable 12000
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