Question

On February 1, 2021, Wolf Inc. issued 10% bonds dated February 1, 2021, with a face amount of $220,000. The bonds sold for $263,544 and mature in 20 years. The effective interest rate for these bonds was 8%. Interest is paid semiannually on July 31 and January 31. Wolf's fiscal year is the calendar year. Wolf uses the effective interest method of amortization.

Required:
1. Prepare the journal entry to record the bond issuance on February 1, 2021.
2. Prepare the entry to record interest on July 31, 2021.
3. Prepare the necessary journal entry on December 31, 2021.
4. Prepare the necessary journal entry on January 31, 2022.

Answer 1

Solution 1:

Journal Entries - Wolf Inc.
Date	Particulars	Debit	Credit
1-Feb-21	Cash Dr	$263,544.00
	To Bond Payable		$220,000.00
	To Premium on Bond Payable		$43,544.00
	(To record issue of bond at premium)

Solution 2:

Journal Entries - Wolf Inc.
Date	Particulars	Debit	Credit
31-Jul-21	Interest Expense Dr ($263,544*8%*6/12)	$10,542.00
	Premium on bond payable Dr	$458.00
	To Cash ($220,000*10%*6/12)		$11,000.00
	(To record interest payment and premium amortization)

Solution 3:

Journal Entries - Wolf Inc.
Date	Particulars	Debit	Credit
31-Dec-21	Interest Expense Dr [($263,544 - $458)*8%*5/12]	$8,770.00
	Premium on bond payable Dr	$397.00
	To Interest payable ($220,000*10%*5/12)		$9,167.00
	(To record interest accrued and premium amortization)

Solution 4:

Journal Entries - Wolf Inc.
Date	Particulars	Debit	Credit
31-Jan-22	Interest Expense Dr [($263,544 - $458)*8%*1/12]	$1,754.00
	Premium on bond payable Dr	$79.00
	Interest payable Dr	$9,167.00
	To Cash ($220,000*10%*6/12)		$11,000.00
	(To record interest payment and premium amortization)