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12 July, 04:53

On January 1, Year 1, Sayers Company issued $280,000 of five-year, 6 percent bonds at 102. Interest is payable semiannually on June 30 and December 31. The premium is amortized using the straight-line method. Required Prepare the journal entries to record the bond transactions for Year 1 and Year 2.

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  1. 12 July, 07:38
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    The cash received from bond issuance is journalized as follows:

    Dr Cash $285,600

    Cr Bonds payable $280,000

    Cr Premium on Bonds payable $5,600

    The June 30 and 31 December Year 1 interest on the bonds are recorded thus:

    30 June

    Dr Interest expense (bal fig) $7,840

    Dr Premium on bonds $560

    Cr Cash $8400

    31 December

    Dr Interest expense (bal fig) $7,840

    Dr Premium on bonds $560

    Cr Cash $8400

    The June 30 and 31 December Year 2 interest on the bonds are recorded thus:

    30 June

    Dr Interest expense (bal fig) $7,840

    Dr Premium on bonds $560

    Cr Cash $8400

    31 December

    Dr Interest expense (bal fig) $7,840

    Dr Premium on bonds $560

    Cr Cash $8400

    Explanation:

    The amount realized from the bond is calculated thus:

    $280,000*102%=$285,600

    Premium on bond=Bonds proceeds-par value

    =$285,600-$280,000

    =$5,600

    Semi-annual amortization of bond premium=$5,600/5*6/12

    =$560

    Semi-annual interest payment=$280,000*6%*6/12

    =$8,400
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