Question

Alpha company uses the straight-line method for amortization of all bond premium & discounts. During FY 2016 Alpha had the following bond payable transaction: -January 2, issued 10, $1,000 bonds at 102 1/2. These 5-year bonds are dated January 1, 2016. The contract interest rate is 6%. Interest is payable semi-annual on January 1 and July 1. -July 1, Alpha issued $500,000 of 10%, 10-year bonds. These bonds are dated January 1, 2016, were issued at 88 1/2, and pay interest on July and January 1. -October 1, Alpha issues 10-year bonds $10,000 face value bonds for $10,860 cash. The bonds have a stated rate of 8%. Interest is payable on October 1 and April 1. Use this information to prepare General Journal entries for the three bonds issued and any interest accruals and payments for the FY 2016. There are Three 12/31/16 transactions for the fiscal year accruals.

Answer 1

Journal entries
		AMT IN $	AMT IN $
Date	particulars	Debit	Credit
jan 2 2016	cash (10*102.5)	1025
	6% bond payable		1000
	premium on bonds payable		25
	( being bond issue at premium)
Jul-01	interest exp	27.5
	premium on bonds payable (25/5)*1/2-amortization of premium	2.5
	cash ( 1000*6%*1/2)		30
	( being payament of int along with amortization of
	bond premium)
Jul-01	cash ( 500000/100)*88.5	442500
	discount on bonds payable	57500
	10% bond payable		500000
	( being bond issued at discount)
Oct-01	cash	10860
	8% bond payable		10000
	premium on bonds payable		860
	(being bond issued at premium)
Dec-31	interest exp	27.5
	premium on bond payable (25/5)*1/2- amortization of premium	2.5
	interest payable ( 1000*6%*1/2)		30
	( being ineterest accrued on 6% bond)
Dec-31	interest exp	27875
	discount on bonds payable (57500/10)*1/2- amortization of discount		2875
	interest payable ( 500000*10%*1/2)		25000
	( being accrued on 10% bonds)
Dec-31	interest exp	119
	premium on bonds payable ( 860/10)*2/12	14
	interest payable( 10000*8%*2/12)- amortization of premium		133
	( being interest accrued on 8% bond )