Instruction: Prepare the journal entries for the bond transactions presented bel
ID: 2428444 • Letter: I
Question
Instruction: 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 authorization of the proper amount of premium (Use straight-line authorization). 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
Interest: Interest percentage = 12% par value = $900,000 Yearly interest = 900000*12% = $108,000 Monthly interest = 108000 / 12 = $9,000 Premium Amortization: Total Premium = $54,000 Years = 10 Yearly amortization = 54000/10 = $5,400 Accrued interest at closing = 64800 = 10800 Total = $75,600 Dr $ Cr $ May1,2010 Cash 954000 Bonds payble 900000 Premium on bonds payble 54000 (Being bonds sold with premium on may 1) 31-Dec-10 Interest Expenses 108000 Premium on bonds payble 5400 Interest payble/Accured Interest 113400 (Being accured interest and Amourtization) Jan1,2011 Interest payble 108000 Cash 108000 (Being interest paid) April 1,2011 Bond principle 360000 Interest payble 10800 Loss on redumption on bonds 7200 Cash 367200 Accured Interes 10800 (Being redumption of bonds) 31-Dec-11 Interest Expenses 64800 Premium on bonds payble 5400 Interest payble/Accured Interest 70200 (Being accured interest and Amourtization) Dr $ Cr $ May1,2010 Cash 954000 Bonds payble 900000 Premium on bonds payble 54000 (Being bonds sold with premium on may 1) 31-Dec-10 Interest Expenses 108000 Premium on bonds payble 5400 Interest payble/Accured Interest 113400 (Being accured interest and Amourtization) Jan1,2011 Interest payble 108000 Cash 108000 (Being interest paid) April 1,2011 Bond principle 360000 Interest payble 10800 Loss on redumption on bonds 7200 Cash 367200 Accured Interes 10800 (Being redumption of bonds) 31-Dec-11 Interest Expenses 64800 Premium on bonds payble 5400 Interest payble/Accured Interest 70200 (Being accured interest and Amourtization)Thank you..... Interest: Interest percentage = 12% par value = $900,000 Yearly interest = 900000*12% = $108,000 Monthly interest = 108000 / 12 = $9,000 Premium Amortization: Total Premium = $54,000 Years = 10 Yearly amortization = 54000/10 = $5,400