On January 1, 2018, Twister Enterprises, a manufacturer of a variety of transpor
ID: 2522756 • Letter: O
Question
On January 1, 2018, Twister Enterprises, a manufacturer of a variety of transportable spin rides, issues $420,000 of 6% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. 3. If the market interest rate is 5%, the bonds will issue at $452,737. Record the bond issue on January 1, 2018, and the first two semiannual interest payments on June 30, 2018, and December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Explanation / Answer
Solution:
Journal Entries - Twister Enterprises Date Particulars Debit Credit 1-Jan-18 Cash A/c Dr $452,737.00 To bonds payable $420,000.00 To Premium on bond $32,737.00 (Being issue of bond at premium recorded) 30-Jun-18 Interest Expense Dr ($452,737 * 2.50%) $11,318.00 Premium on bond Dr $1,282.00 To Cash ($420,000*3%) $12,600.00 (Being first semiannual interest payment made and premium amortized) 31-Dec-18 Interest Expense Dr [($452,737 - $1,282) * 2.50%] $11,286.00 Premium on bond Dr $1,314.00 To Cash ($420,000*3%) $12,600.00 (Being 2nd semiannual interest payment made and premium amortized)