Prepare journal entries for the following four events ( use straight-line amorti
ID: 2532626 • Letter: P
Question
Prepare journal entries for the following fourevents (usestraight-line amortization).
01/01/07 The Def Co. issued $100,000, five year bonds, carrying a coupon rate of ten percent (10%), interest payable annually on December 31 each year. Assume that the net proceeds from the issue of the bond were $2,000 different from the face value. The market rate of interest at the time of issue was nine percent(9%).
12/31/07 Recognize the first interest payment.
12/31/08 Recognize the second interest payment.
01/01/09 Redeem (i.e., buy back) twenty percent (20%) of the bonds outstanding for $19,500.
Explanation / Answer
01/01/07 Discount on issue of bonds a/c Dr. 2000
Bank a/c Dr. 98000
To 10% bonds 100,000
12/31/07 Interest expense a/c Dr. 10,000
To interest payable a/c 10,000
Interest payable a/c Dr. 10,000
To cash/ Bank 10,000
12/31/08 Interest expense a/c Dr. 10,000
To interest payable a/c 10,000
Interest payable a/c Dr. 10,000
To cash/ Bank 10,000
01/01/09 10% bond A/c Dr. 20,000
To cash/ Bank 19,500
To gain on redemption of bonds 500