Washington Mutual Insurance Company issued a $40,000, 11%, 10-year bond payable at 107 on January 1,...
Washington Mutual Insurance Company issued a $40,000, 11%, 10-year bond payable at 107 on January 1, 2018. Interest is paid semiannually on January 1 and July 1.
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1. |
Journalize the issuance of the bond payable on January 1, 2018. |
|
2. |
Journalize the payment of semiannual interest and amortization of the bond discount or premium on July 1, 2018. |
Homework Answers
These bonds are issued at premium of 5%.
1. Entry for issuance of bond on January 1, 2018 will be
Cash Dr ($ 40000 *107%) $ 42800
Premium on bond payable Cr $ 2800
Bonds payable cr $ 40000
2. We will amortize premium over the period of bond on straight line method. Here the number of payments will be 20. (10 years semi annual). So premium amortization on every payment will be $2800/20 years = $ 140
Entry to record payment of interest
June 30, 2018 Bond interest exp Dr ($2200 - $140) $2060
Premium on bonds payable Dr $ 140
Cash Cr $ 2200
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