Polk Incorporated issued $320,000 of 13% bonds on July 1, 2013, for $330,882.55.
ID: 2479955 • Letter: P
Question
Polk Incorporated issued $320,000 of 13% bonds on July 1, 2013, for $330,882.55. The bonds were dated January 1, 2013, pay interest on each June 30 and December 31, are due December 31, 2017, and were issued to yield 12%. Polk uses the effective interest method of amortization.
Prepare the journal entries to record the issue of the bonds on July 1, 2013, and the interest payments on December 31, 2013, and June 30, 2014. If an amount box does not require an entry, leave it blank. Round your answers to two decimal places, if necessary.
Explanation / Answer
Bond outstanding at 30 june 2014 :Balance in premium account = 10882.55 - 947.05 = 9935.5
Bond outstanding = 320000+9935.5 = 329935.5
Date Account Debit credit july 1 ,2013 cash 330882.55 Bond payable 320000 Premium on bond payable 10882.55 [being bond issued] dec 31 ,2013 Interest expense [330882.55*.12*6/12] 19852.95 Premium on bond payable 947.05 cash [320000*.13*6/12] 20800 June 30 2014 Interest expense [329935.5*.12*6/12] 19796.13 Premium on bond payable 1003.87 cash 20800