Problem 10-3B

Straight-line: Amortization of bond premium P1 P3

Refer to the bond details in Problem 10-2B, except assume that the bonds are issued at a price of $4,192,932.

Required

Prepare the January 1, 2013, journal entry to record the bonds' issuance.

For each semiannual period, compute (a) the cash payment, (b) the straight-line premium amortization, and (c) the bond interest expense.

Determine the total bond interest expense to be recognized over the bonds' life.

Prepare the first two years of an amortization table like Exhibit 10.11 using the straight-line method.

Prepare the journal entries to record the first two interest payments.

Check

(3) $2,607,068

(4) 6/30/2014 carrying value, 4,073,991

1. Journal Entry:

Date	Account Title	Debit	Credit
Jan1 2013	Cash	3,010,000
	Discount on issue of Bonds	390,000
	10% Bonds Payable		3,400,000

2. Cash Payment for Each semiannual period:

3,400,000 x 5% = $170,000

Straight Line Discount amortization = 390,000 / 20 = $19,500

Bond Interest Expenses = 170,000 + 19,500 = $189,500

3. Total Bond Interest expenses = 189,500 x 20 = $3,790,000

4. Amortization Table:

Date	Interest Payment	Interest Expenses	Amortization of Bond Discount	Debit Balance in Bonds Discount	Book Value of the Bonds
1 Jan 2013				390,000	3,010,000
30 June 2013	170,000	189,500	19,500	370,500	3,029,500
Dec31 2013	170,000	189,500	19,500	351,000	3,049,000

5. Journal entries for interest:

Date	Account Title	Debit	Credit
June 30, 2013	Interest Expenses	189,500
	Discount on Issue of Bonds		19,500
	Cash		170,000
Dec31, 2013	Interest Expenses	189,500
	Discount on Issue of Bonds		19,500
	Cash		170,000