Question

Xonic Corporation issued $7.5 million of 20-year, 8 percent bonds on April 1, 2018, at 102. Interest is due on March 31 and September 30 of each year, and all of the bonds in the issue mature on March 31, 2038. Xonic’s fiscal year ends on December 31.

1. Record the bond interest and amortize bond premium.

2. Record the final interest payment and amortize bond premium.

3. Record the retirement of the bonds.

Answer 1

Interest is due on March 31 and September 30 of each year.
Coupon rate per semiannually (8% /2)	4%
No of period (20 years * 2)	40
Issued at (7500000*102%)	7,650,000
Face value of bond	7,500,000
Premium on Bond payable (7650000-7500000)	150,000
Interest paid per semiannually (7500000*4%)	300,000
Amortization of bond premium per semiannual (150000/40 period)	3,750

Interest payment (Credit Cash) = Face value of bond * Coupon rate
Interest Expense (Debit Interest Expense) = Interest payment - Amortization of bond premium
Amortization of bond premium (Debit Bond Premium) = Interest payment - Interest Expense
Credit Balance in Bond premium = Credit Balance in Bond premium for previous period - Amortization of bond premium
Credit Balance in Bond Payable = Face value of bond
Book value of Bond = Credit Balance in Bond premium + Credit Balance in Bond Payable
We can use straight line method for Amortization of bond premium.
Bond Premium Amortization Table
Credit Balance in Bond premium at end of retirement of bond payable must be Zero.
Period	Date		Interest payment	Interest Expense	Amortization of bond premium	Credit Balance in Bond premium	Credit Balance in Bond Payable	Book value of Bond
0	01-Apr-18					150000	7,500,000	7650000
1	30-Sep-18		300,000	296250	3750	146250	7,500,000	7646250
2	31-Mar-19		300000	296250	3750	142500	7,500,000	7642500
3	30-Sep-19		300000	296250	3750	138750	7,500,000	7638750
4	31-Mar-20		300000	296250	3750	135000	7,500,000	7635000
5	30-Sep-20		300000	296250	3750	131250	7,500,000	7631250
6	31-Mar-21		300000	296250	3750	127500	7,500,000	7627500
7	30-Sep-21		300000	296250	3750	123750	7,500,000	7623750
8	31-Mar-22		300000	296250	3750	120000	7,500,000	7620000
9	30-Sep-22		300000	296250	3750	116250	7,500,000	7616250
10	31-Mar-23		300000	296250	3750	112500	7,500,000	7612500
11	30-Sep-23		300000	296250	3750	108750	7,500,000	7608750
12	31-Mar-24		300000	296250	3750	105000	7,500,000	7605000
13	30-Sep-24		300000	296250	3750	101250	7,500,000	7601250
14	31-Mar-25		300000	296250	3750	97500	7,500,000	7597500
15	30-Sep-25		300000	296250	3750	93750	7,500,000	7593750
16	31-Mar-26		300000	296250	3750	90000	7,500,000	7590000
17	30-Sep-26		300000	296250	3750	86250	7,500,000	7586250
18	31-Mar-27		300000	296250	3750	82500	7,500,000	7582500
19	30-Sep-27		300000	296250	3750	78750	7,500,000	7578750
20	31-Mar-28		300000	296250	3750	75000	7,500,000	7575000
21	30-Sep-28		300000	296250	3750	71250	7,500,000	7571250
22	31-Mar-29		300000	296250	3750	67500	7,500,000	7567500
23	30-Sep-29		300000	296250	3750	63750	7,500,000	7563750
24	31-Mar-30		300000	296250	3750	60000	7,500,000	7560000
25	30-Sep-30		300000	296250	3750	56250	7,500,000	7556250
26	31-Mar-31		300000	296250	3750	52500	7,500,000	7552500
27	30-Sep-31		300000	296250	3750	48750	7,500,000	7548750
28	31-Mar-32		300000	296250	3750	45000	7,500,000	7545000
29	30-Sep-32		300000	296250	3750	41250	7,500,000	7541250
30	31-Mar-33		300000	296250	3750	37500	7,500,000	7537500
31	30-Sep-33		300000	296250	3750	33750	7,500,000	7533750
32	31-Mar-34		300000	296250	3750	30000	7,500,000	7530000
33	30-Sep-34		300000	296250	3750	26250	7,500,000	7526250
34	31-Mar-35		300000	296250	3750	22500	7,500,000	7522500
35	30-Sep-35		300000	296250	3750	18750	7,500,000	7518750
36	31-Mar-36		300000	296250	3750	15000	7,500,000	7515000
37	30-Sep-36		300000	296250	3750	11250	7,500,000	7511250
38	31-Mar-37		300000	296250	3750	7500	7,500,000	7507500
39	30-Sep-37		300000	296250	3750	3750	7,500,000	7503750
40	31-Mar-38		300000	296250	3750	0	7,500,000	7500000

Journal entries
Date	Account title	Debit	Credit
01-Apr-18	Cash	7650000
	Bond payable		7,500,000
	Premium on bond payable		150000
	(To record issued of bond payable at Premium.)
30-Sep-18	Interest expense	296250
	Premium on bond payable	3750
	Cash		300000
	(To record interest expense and amortization of bond premium.)
	Same entry for each period for interest expense and amortization of bond premium.
31-Mar-38	Interest expense	296250
	Premium on bond payable	3750
	Cash		300000
	(To record interest expense and amortization of bond premium.)
31-Mar-38	Bond payable	7500000
	Cash		7500000
	(To record Retirement of bond payable.)