Question

In: Accounting

On January 1, the first day of the fiscal year, a company issues a $1,350,000, 11%,...

On January 1, the first day of the fiscal year, a company issues a $1,350,000, 11%, five-year bond that pays semiannual interest of $74,250 ($1,350,000 x 11% x ½), receiving cash of $1,512,610. Journalize the bond issuance. Refer to the Chart of Accounts for exact wording of account titles.

CHART OF ACCOUNTS- General Ledger

ASSETS- 110 Cash, 111 Petty Cash, 121 Accounts Receivable, 122 Allowance for Doubtful Accounts, 126 Interest Receivable, 127 Notes Receivable, 131 Merchandise Inventory, 141 Office Supplies, 191 Land, 194 Office Equipment, 195 Accumulated Depreciation-Office Equipment

LIABILITIES- 210 Accounts Payable, 221 Salaries Payable, 231 Sales Tax Payable, 232 Interest Payable ,241 Notes Payable,251 Bonds Payable, 252 Discount on Bonds Payable, 253 Premium on Bonds Payable

EQUITY- 311 Common Stock, 312 Paid-In Capital in Excess of Par-Common Stock, 315 Treasury Stock, 321 Preferred Stock, 322 Paid-In Capital in Excess of Par-Preferred Stock, 331 Paid-In Capital from Sale of Treasury Stock, 340 Retained Earnings, 351 Cash Dividends, 352 Stock Dividends, 390 Income Summary

REVENUE- 410 Sales, 610 Interest Revenue, 611 Gain on Redemption of Bonds

EXPENSES- 510 Cost of Merchandise Sold, 515 Credit Card Expense, 516 Cash Short and Over, 522 Office Salaries Expense, 531 Advertising Expense, 532 Delivery Expense, 533 Repairs Expense, 535 Rent Expense, 536 Insurance Expense, 537 Office Supplies Expense, 541 Bad Debt Expense, 562 Depreciation Expense-Office Equipment, 590 Miscellaneous Expense, 710 Interest Expense, 711 Loss on Redemption of Bonds

Solutions

Expert Solution

Date Particulars Debit Credit
1-Jan 110-cash 1512610
253-Premium on Bonds Payable ($1512610 cash-$1350000 bond) 162610
251-Bonds Payable 1350000
(To record issue of bonds at premium)
Bonds are issued at premium its face value is $1350000. we always record bond payable at the
amount we have to pay back which is face value or principal amount of bond. The difference
amount which we have to pay back is recorded as liability "Premium on Bonds Payable".
The bonds are issued on premium now this premium will decrease the amount of interest expense
as we record it semi annually. we will now amortise the premium using streight line method.
Here premium amortisation amount will be.
162610/(5 years * 2 interest payments each year)
16261
entry to record semi annual interest and premium amortisation is:
30-Jun 710-Bond Interest Expense 57989
($74250 cash interest -$16261 premium amortised)
253-premium on bonds payable 16261
110-cash ($1350000*11%*1/2) 74250
(to record interest payment and premium amortisation)

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