Question
Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Smiley issued
Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method
Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Smiley issued $7,200,000 of 5-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $7,484,858. Interest is payable semiannually on April 1 and October 1.
a. Journalize the entry to record the issuance of bonds on April 1, Year 1. If an amount box does not require an entry, leave it blank.
Cash | |||
Premium on Bonds Payable | |||
Bonds Payable |
Feedback
Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account.
The straight-line method of amortization provides equal amounts of amortization over the life of the bond.
Learning Objective 2.
b. Journalize the entry to record the first interest payment on October 1, Year 1, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.) If an amount box does not require an entry, leave it blank.
Interest Expense | |||
Premium on Bonds Payable | |||
Cash |
On the first day of its fiscal year, Chin Company issued $11,000,000 of five-year, 6% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 8%, resulting in Chin receiving cash of $10,107,757.
a. Journalize the entries to record the following:
- Issuance of the bonds.
- First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
- Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar.
1. | Cash | ||
Discount on Bonds Payable | |||
Bonds Payable | |||
2. | Interest Expense | ||
Discount on Bonds Payable | |||
Cash | |||
3. | Interest Expense | ||
Discount on Bonds Payable | |||
Cash |
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