Question

On January 1, 2020, Sheridan Company sold 12% bonds having a maturity value of $350,000 for $376,535, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each year. Sheridan Company allocates interest and unamortized discount or premium on the effective- interest basis. Your answer is correct. Prepare the journal entry at the date of the bond issuance. (Round answer to 0 decimal places, eg. 38,548. If no entry is required, select "No Entry" for the account titles and enter for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Debit Credit Date Account Titles and Explanation January Cash 1, 2020 376535 350000 Bonds Payable 26535 Premium on Bonds Payable

Answer 1

Journal Entry at the date of issue (Amount in $)
Date	Account Titles	Debit	Credit
January 1, 2017	Cash	3,76,535
	Bonds payable		3,50,000
	Premium on Bonds payable (Bal.fig.)		26,535

(ii) Cash paid for interest each year = $350,000*12% = $42000
Interest expense = Carrying value*yield = $376535*10% = $37654
Schedule of interest expense and bond amortization for 2020 through 2022
Date	Cash paid	Interest expense	Premium on bonds payable written off	Carrying amount
Jan 1, 2020				3,76,535
Dec 31, 2020	42,000	37,654	4,346	3,72,189
Dec 31, 2021	42,000	(372189*10%) = 37219	4,781	3,67,408
Dec 31, 2022	42,000	36741	5,259	3,62,149
Dec 31, 2023	42,000	36215	5,785	3,56,364

Journal entries to record interest payment and amortization for 2017 (Amt in $)
Date	Account Titles	Debit	Credit
Dec 31, 2020	Bond interest	37,219
	Premium on bonds payable (Bal.fig.)	4,781
	Cash		42,000