Please do a-c journal entires. Thank you very much. I know this same question ha
ID: 2470422 • Letter: P
Question
Please do a-c journal entires. Thank you very much. I know this same question has been posted before but the journal entries are incorrect. Below the problem I have attatched a list of the available accounts to use.
Celine Dion Company issued $600,000 of 10%, 20-year bonds on January 1, 2014, at 102. Interest is payable semiannually on July 1 and January 1. Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%. Prepare the journal entries to record the following. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) (a) The issuance of the bonds. (b) The payment of interest and related amortization on July 1, 2014. (c) The accrual of interest and the related amortization on December 31, 2014.
Accumulated Depreciation-Equipment Accumulated Depreciation-Machinery Allowance for Doubtful Accounts Bad Debt Expense Bond Issue Expense Bonds Payable Buildings Cash Common Stock Debt Investments Depreciation Expense Discount on Bonds Payable Discount on Notes Payable Discount on Notes Receivable Equipment Equity Investments Gain on Disposal of Machinery Gain on Disposal of Land Gain on Disposal of Plant Assets Gain on Redemption of Bonds Gain on Restructuring of Debt Gain on Sale of Machinery Interest Expense Interest Payable Interest Receivable Interest Revenue Land Loss on Disposal of Land Loss on Redemption of Bonds Machinery Mortgage Payable No Entry Notes Payable Notes Receivable Paid-in Capital in Excess of Par - Common Stock Paid-in Capital in Excess of Par Preferred Stock Premium on Bonds Payable Sales Revenue Unamortized Bond Issue Costs Unearned Revenue Unearned Sales Revenue Unrealized Holding Gain or Loss IncomeExplanation / Answer
Solution:
Face Value of Bonds = $600,000
Sale Proceeds from Bonds issued = $600,000 x 102/100 = $612,000
Premium on Bonds Payable = Issue Price – Par Value = $612,000 - $600,000 = $12,000
Premium on Bonds Payable $12,000 is to be amortized during the life of the bonds.
No of times interest to be paid during the life of bond = 20 years x 2 = 40 times
The amount of cash interest on Bonds Payable to be paid to bond holders each time July 1 and January 1 = $600,000 x 10% x ½ = $30,000
Journal Entry
(a) The issuance of the bonds
Date
Account Titles and Explanation
Debit
Credit
Jan 1, 2014
Cash A/c Dr.
$612,000
To Bonds Payable
$600,000
To Premium on Bonds Payable
$12,000
(Bonds issued at premium of $12,000)
b) The payment of interest and related amortization on July 1, 2014
Date
Account Titles and Explanation
Debit
Credit
July 1, 2014
Interest Expenses Dr. ($612,000 x 9.7705% x ½)
$29,898
Premium on Bonds Payable Dr.
$102
To Interest Payable
$30,000
(Being interest expenses recorded)
Interest Payable Dr.
$30,000
To Cash A/c
$30,000
(Being Cash Interest paid to bondholders)
(c) The accrual of interest and the related amortization on December 31, 2014
Date
Account Titles and Explanation
Debit
Credit
Dec 31, 2014
Interest Expenses Dr. ($611,898 x 9.7705% x ½)
$29,893
Premium on Bonds Payable Dr.
$107
To Interest Payable
$30,000
(Being interest expenses recorded)
Calculation of Interest Expenses
As per effective interest method, interest expenses are recorded on the basis of beginning book value in Bonds Payable Account.
Interest Expenses on July 1, 2014 = Bond Payable A/c Book Value on July 1, 2014 x effective interest rate x ½ = $612,000 x 9.7705% x ½ = $29,898
Amortization of Bond Premium = Cash Interest – Interest Expenses = $30,000 - $29,898 = $102
Interest Expenses on Dec 31, 2014 = Bond Payable A/c Book Value on Dec 31, 2014 x effective interest rate x ½ = ($612,000 - $102) x 9.7705% x ½ = $29,893
Amortization of Bond Premium = Cash Interest – Interest Expenses = $30,000 - $29,893 = $107
Date
Account Titles and Explanation
Debit
Credit
Jan 1, 2014
Cash A/c Dr.
$612,000
To Bonds Payable
$600,000
To Premium on Bonds Payable
$12,000
(Bonds issued at premium of $12,000)