Question

On January 1, 2018, Noriyal Manufacturing Corporation issued $5,000,000, 10%, 6-year bonds dated January 1, 2018, at 105. The bonds pay semi-annual interest on January 1 and July 1. The company uses the straight-line method ofamortization and has a December 31, year end.

Instructions:

Prepare the journal entries to record the following:

1. The issuance of bonds on January 1, 2018.

2. The payment of interest and the discount (or premium) amortization on July 1, 2018.

3. The accrual of interest and the discount (or premium) amortization on December 31, 2018.

4. The payment of interest on January 1, 2019.

Answer 1

Journal Entries
Cash or Bank Account	50,00,000.00
To 10% 6-Year Bonds		47,61,904.76
To Premium on Bonds payable		2,38,095.24
(Being 10% 6-year bond issued at 105 and premium on isssue is recorded)
Interest on bonds	2,38,095.24
To Cash or Bnak Account		2,38,095.24
(Being interest paid on bonds @ 10% for 6 months)
Premium on Bonds payable	19,841.27
To Cash or Bank		19,841.27
(Being paymemt made for amortization of premium on issue of bonds for 6 months)
Interest Expenses	2,38,095.24
Premium on Bonds payable	19,841.27
To Interest Payable		2,57,936.51
(Being accrued interest on bonds and straightline amortization of premium on issue of bond for the period July 1 to Dec. 31 i.e 6 months recorded)
Interest Payable	2,57,936.51
To Cash or Bank Account		2,57,936.51
(Being interest paid )
TOTAL	57,73,809.52	57,73,809.53
Note:
1) Interest is calculated on face value of the bond i.e $ 47,61,904.76 @ 10% on semi-annual basis
2) Amount of amortization on premium on issue of bond = 2,38,095.24 / 6 years = 39,682.54 per annuam
Amount of amortization half year = 39,682.54 / 2 = 19841.27