Sehr Company issued $500,000, 6%, 30-year bonds on January 1, 2017, at 103. Inte

Question

Sehr Company issued $500,000, 6%, 30-year bonds on January 1, 2017, at 103. Interest is payable annually on January 1. Sehr uses straight-line amortization for bond premium or discount.

Instructions

Prepare the journal entries to record the following events.

(a) The issuance of the bonds.

(b) The accrual of interest and the premium amortization on December 31, 2017.

(c)  The payment of interest on January 1, 2018.

(d) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Explanation / Answer

b. The accrual of interest and premium amortization
(31-Dec-2017)

Description Debit Credit a. The issuance of bonds (01-Jan-2017) Cash (5,000 x 103) $515,000        Bonds Payable (5,000 x 100) $500,000        Premium on Bonds Payable (5,000 x 3) $15,000

b. The accrual of interest and premium amortization
(31-Dec-2017)

Interest expense (30,000 - 500) $29,500 Premium on Bonds Payable (15000 / 30)      $500      Interest Payable (500,000 x 6%) $30,000 c. The payment of interest (1-Jan-2018) Interest Payable $30,000      Cash $30,000 d. The redemption of bonds at maturity (1-Jan-2047) Bonds Payable $500,000      Cash $500,000

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