Accounting for Bonds Issued at a Premium : Issuance, Interest Payments, and Retirement
Swanson Corporation issued $8million of 20-year, 8percent bonds onApril 1,2011, at 102. Interestis due onMarch 31 and September 30of each year, and all of thebonds in theissue matureonMarch 31 , 2031. Swanson’s fiscal year ends on December 31. Prepare thefollowing journalentries:
a. April 1, 2011, to record the issuance of the bonds.
b. September 30, 2011, to pay interest and toamortize the bond premium.
c. March 31, 2031, to pay interest, amortize the bond premium, and retire the bonds at maturity (make two separate entries).
d. Briefly explain the effect of amortizing the bond premium upon (1) annual net income and(2) annual net cash flow from operating activities. (Ignore possible income tax effects.)
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