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Using a Premium Amortization Table (Straight Line) For Dingle Corporation, the following amortization table was prepared when $400,000 of 5-year, 7% bonds were sold on

Using a Premium Amortization Table (Straight Line)

For Dingle Corporation, the following amortization table was prepared when $400,000 of 5-year, 7% bonds were sold on January 1, 2020, for $420,000.



Period

Cash
Payment
(Credit)

Interest
Expense
(Debit)

Premium
on Bonds
Payable
(Debit)

Premium
on Bonds
Payable
Balance

Carrying
Value

At issue$20,000$420,000
06/30/20$14,000$12,000$2,00018,000418,000
12/31/2014,00012,0002,00016,000416,000
06/30/2114,00012,0002,00014,000414,000
12/31/2114,00012,0002,00012,000412,000
06/30/2214,00012,0002,00010,000410,000
12/31/2214,00012,0002,0008,000408,000
06/30/2314,00012,0002,0006,000406,000
12/31/2314,00012,0002,0004,000404,000
06/30/2414,00012,0002,0002,000402,000
12/31/2414,00012,0002,0000400,000

Required:

1. Prepare the entry to recognize the issuance of the bonds on January 1, 2020.

2020 Jan. 31Cash
Bonds Payable
Premium on Bonds Payable
Record issuance of bonds at premium

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1. When bonds are issued, any premium or discount is recorded in a separate valuation account.

2. Prepare the entry to recognize the first interest payment on June 30, 2020.

2020 June 30Interest Expense
Premium on Bonds Payable
Cash
Record interest expense

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2. An amortization table helps calculate the proper amortization of bond premium or discount. They are particularly helpful when the effective interest rate method is used; however, this problem amortizes the premium using the straight-line method.

3. Determine what interest expense for this bond issue Dingle will report in its 2021 income statement.
$

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3. Any premium or discount is amortized to interest expense over the life of the loan.

4. Indicate how these bonds will appear in Dingle's December 31, 2023 balance sheet.

Dingle Corporation
Balance Sheet (partial)
December 31, 2023
Bonds payable:
7% Bonds, due 2024$
Add: Unamortized Premium on Bonds Payable$

 

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