Question

Nicholas Ram Corporation have a $2,900,000 "bond issue" dated March 1, 2016 due in 15 years with an annual interest rate of 9%. Interest is payable March 1 and September 1. On August 1, 2016, the bond was sold for $3,013,750 plus accrued interest.

Using the straight-line method, prepare the general journal entries for each of the following:

a)		The issuance of the bond on August 1, 2016.
b)		Payment of the semi-annual interest and the amortization of the premium on September 1, 2016.
c)		Accrual of the interest and the amortization of the premium on December 31, 2016.
d)		Payment of the semi-annual interest and the amortization of the premium on March 1, 2017.

(Credit account titles are automatically indented when the amount is entered. Do not indent manually. Do not use dollar signs ($) when entering amounts. To see comma-formatted numbers reflected in your final answers, you must enter your answers with commas. Round answers to 2 decimal places, e.g. 5,275.25.)

		Debit	Credit

Answer 1

Date	Accounts	Debit	Credit
Aug 1, 2016	Cash	3122500
	Bonds payable		2900000
	Premium on bonds payable (3013750-22900000)		113750
	Interest payable (2900000*9%*5/12)		108750
September 1, 2016	Interest payable	108750
	Interest expense	17958.33
	Premium on bonds payable (113750/30)	3791.67
	Cash (2900000*9%*6/12)		130500
December 31	Interest expense	84472.22
	Premium on bonds payable (113750/30*4/6)	2527.78
	Interest payable (2900000*9%*4/12)		87000
March 1, 2017	interest payable	87000
	Premium on bonds payable (113750/30*2/6)	1263.89
	Interest expense	42246.11
	Cash		130500