Bonds Payable Journal Entries; Effective Interest Amortization On December 31, 2

Question

Bonds Payable Journal Entries; Effective Interest Amortization
On December 31, 2009, Kay Company issued $600,000 of five-year, 13% bonds payable for $650,798 yielding an effective interest rate of 10%. Interest is payable semiannually on June 30 and December 31. Prepare journal entries to reflect (a) the issuance of the bonds, (b) the semiannual interest payment and premium amortization (effective interest method) on June 30, 2010, and (c) the semiannual interest payment and premium amortization on December 31, 2010. Round amounts to the nearest dollar.

General Journal Date Description Debit Credit a.) Dec.31 AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense $Answer $Answer AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense Answer Answer Bonds Payable Answer Answer To record issuance of bonds. b.) Jun.30 AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense Answer Answer Premium on Bonds Payable Answer Answer AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense Answer Answer To record semiannual interest payment and
premium amortization. c.) Dec.31 Bond Interest Expense Answer Answer AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense Answer Answer AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense Answer Answer To record semiannual interest payment and premium amortization.

Explanation / Answer

Journal entry :

Date accounts & explanation debit credit Dec 31 Cash 650798     Bonds payable 600000     Premium on bonds payable 50798 (To record bonds issue) June 30 Interest expense (650798*10%*6/12) 32540 Premium on bonds payable 6460     Cash (600000*13%*6/12) 39000 (To record interest) Dec 31 Interest expense (650798-6460)*10%*6/12 32217 Premium on bonds payable 6783       Cash 39000 (To record interest)

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