Instructions: Prepare the journal entries for the bond transactions presented be
ID: 2366201 • Letter: I
Question
Instructions: Prepare the journal entries for the bond transactions presented below: May 1, 2010: Bonds payable with a par value of $900,000, are dated January 1, 2010 are sold at 106 plus accrued interest. They are coupon bonds, bear interest at 12% (payable annually at January 1), and mature January 1, 2020. (Use interest expense account for accrued interest). Dec. 31: Adjusting entries are made to record the accrued interest on the bonds, and the amortization of the proper amount of premium (Use straight-line amortization). Jan 1, 2011: Interest on the bonds is paid. April 1: Bonds of par value of $360,000 are called at 102 plus accrued interest, and retired. (Bond premium is to be amortized only at the end of each year). Dec 31: Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.Explanation / Answer
Date Accounts title Dr.$ Cr.$ 1-05-10 Cash 990,000.00 Bonds payable 900,000.00 Premium on bonds payable 54,000.00 Interest expense 36,000.00 31-12-10 Interest expense 108,000.00 Interest payable 108,000 Premium on bonds payable 3,724.14 Interest expense 3,724.14 1-01-11 Interest payable 108,000 Cash 108,000 1-04-11 Bonds payable 360,000.00 Premium on bonds payable 18,993.10* Interest expense 10,800.00** Cash Gain on retirement of bonds