Question

Grouper Corporation sold $2,400,000, 9%, 5-year bonds on January 1, 2022. The bonds were dated January 1, 2022, and pay interest on January 1. Grouper Corporation uses the straight-line method to amortize bond premium or discount. (a) Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2022, assuming that the bonds sold at 103. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 1 enter an account title for the journal entry on January 1enter an account title for the journal entry on January 1 enter a debit amountenter a debit amount enter a credit amountenter a credit amount enter an account title for the journal entry on January 1enter an account title for the journal entry on January 1 enter a debit amountenter a debit amount enter a credit amountenter a credit amount enter an account title for the journal entry on January 1enter an account title for the journal entry on January 1 enter a debit amountenter a debit amount enter a credit amountenter a credit amount Dec. 31 enter an account title for the journal entry on December 31enter an account title for the journal entry on December 31 enter a debit amountenter a debit amount enter a credit amountenter a credit amount enter an account title for the journal entry on December 31enter an account title for the journal entry on December 31 enter a debit amountenter a debit amount enter a credit amountenter a credit amount enter an account title for the journal entry on December 31enter an account title for the journal entry on December 31 enter a debit amountenter a debit amount enter a credit amountenter a credit amount

Answer 1

The Bond issuer usually quote bond prices as percentages of face value— For example; 100 means 100% of face value, 97 means a discounted price of 97%of face value, and 103 means a premium price of 103% of face value.

In this scenario it's said that ' Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2022, assuming that the bonds sold at 103"

Thus the bonds are sold at premium price of 103% of face value.

Date	Account Titles and Explanation	Debit	Credit
1-Jan-22	Cash Account (2,400,000 * 103%)	2,472,000.00
	To Premium on Bonds Payable (2,400,000 - 2,472,000)		72,000.00
	To Bonds Payable Account (Bonds amount)		2,400,000.00
	To record issue of bonds at premium

Now before record an entry for interest paid for the year 2022 and onwards until next five years, we need to make the calculations of amortizing the total premium (72,000) on bonds in next five years by using staright line method.

Per Year Premium   =	72000 / 5	14,400.00
Per Year Interest     =	2,400,000 * 9%	216,000.00

(If there was a discount on bonds payable, then the periodic entry is a debit to interest expense and a credit to discount on bonds payable and credit the cash - thus the cash payment is reduced. However in case of premium on bonds the premium would be debited along with the interest expense and that would increase the cash payment amount) The question says that Interest is paid on 1st of January, (we are assuming here that the interes is paid in the same year) Date Account Titles and Explanation Debit Credit 1-Jan-22 Interest Expense on Bonds Payable                       216,000.00 Premium on Bonds Payable                         14,400.00      To Cash        230,400.00 To record payment of Interest expense on bonds and amortized premium on bonds payble for 1st year The above entry of Interest and Amoritzing the premium on bonds would be the same for all five years.