Question

Blossom Company sold $3,100,000, 7%, 10-year bonds on January 1, 2022. The bonds were dated January 1, 2022, and pay interest on January 1. The company uses straight-line amortization on bond premiums and discounts. Financial statements are prepared annually.

Prepare the journal entries to record the issuance of the bonds assuming they sold at: (1) 101 and (2) 95. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Prepare amortization table for issuance of the bonds sold at 101 for the first three interest payments. Prepare amortization table for issuance of the bonds sold at 95 for the first three interest payments. Prepare the journal entries to record interest expense for 2022 under both of the bond issuances assuming they sold at: (1) 101 and (2) 95. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Show the long-term liabilities balance sheet presentation for issuance of the bonds sold at 101 at December 31, 2022. Show the long-term liabilities balance sheet presentation for issuance of the bonds sold at 95 at December 31, 2022.

Answer 1

Solution:
Journal entry
Date	Account titles & explanations	Debit	Credit
1-Jan-22	Cash(3,100,000*1.01)	$3,131,000
	Premium on bonds		$31,000
	Bonds payable		$3,100,000
	(Being bonds issued at premium)
1-Jan-22	Cash(3,100,000*0.95)	$2,945,000
	Discount on bonds	$155,000
	Bonds payable		$3,100,000
	(Being bonds issued at discount)

Amortization table for issue of bonds 101
Period	Interest	Interest	Premium	Unamortized	Bonds
	Paid	Expense	amortization	premium	Carrying value
				$31,000	$3,131,000
1	$217,000	$213,900	$3,100	$27,900	$3,127,900
2	$217,000	$213,900	$3,100	$24,800	$3,124,800
3	$217,000	$213,900	$3,100	$21,700	$3,121,700
Amortization table for issue of bonds 95
Period	Interest	Interest	Discount	Unamortized	Bonds
	Paid	Expense	amortization	Discount	Carrying value
				$155,000	$2,945,000
1	$217,000	$232,500	$15,500	$139,500	$2,960,500
2	$217,000	$232,500	$15,500	$124,000	$2,976,000
3	$217,000	$232,500	$15,500	$108,500	$2,991,500

Journal entry
Date	Account titles & explanations	Debit	Credit
31-Dec-22	Interest expense	$213,900
	Premium on bonds	$3,100
	Interest payable		$217,000
	(Being Interest expense recorded)
31-Dec-22	Interest expense	$232,500
	Discount on bonds		$15,500
	Interest payable		$217,000
	(Being Interest expense recorded)
	Balancesheet (partial)
	As at December 31, 2022
	Long term liabilities
	Bonds payable	$3,100,000
	Add: Premium on bonds payable	$27,900	$3,127,900
	Balancesheet (partial)
	As at December 31, 2022
	Long term liabilities
	Bonds payable	$3,100,000
	Less: Discount on bonds payable	$139,500	$2,960,500
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