Question

Bonds Issued at a Premium

Carlisle Corp. issued the following bonds at a premium:

Date of issue and sale:	April 1, 20-1
Principal amount:	$430,000
Sale price of bonds:	104
Denomination of bonds:	$1,000
Life of bonds:	20 years
Stated rate:	10%, payable semiannually on September 30 and March 31

1. Prepare journal entries for:

a. Issuance of the bonds at a premium.

b. Interest payment and premium amortization on the bonds on September 30.

c. Year-end adjustment on the bonds.

If an amount box does not require an entry, leave it blank.

1. Prepare journal entries for:

a. Issuance of the bonds at a premium.

b. Interest payment and premium amortization on the bonds on September 30.

c. Year-end adjustment on the bonds.

If an amount box does not require an entry, leave it blank.

Page:  

	DATE	ACCOUNT TITLE	DOC. NO.	POST. REF.	DEBIT	CREDIT
1	a. 20-1 Apr. 1						1
2							2
3							3
4							4
5	b. Sept. 30						5
6							6
7							7
8							8
9	c. Dec. 31						9
10							10
11							11

Answer 1

Note: Bond premium is to be amortized under the Straight line method.

Date	General Journal	Doc. No.	Post Ref.	Debit	Credit
a. 20-1 Apr. 1	Cash                                                             [$430,000 x 104%]			$447,200
	Bond Payable                                     [Principle value or Par value]				$430,000
	Premium on Bonds Payable               [$430,000 x (104% - 100%)]				$17,200
	(To record the issue of bonds at premium)
b. Sept. 30	Bond Interest expense              [Total interest paid - Amortized premium = $21,500 - $430]			$21,070
	Premium on Bonds Payable     [($17,200 / 20 years) x (6 months x 12 months)]			$430
	Cash                               [Interest payment = Principle amount x 10% = $430,000 x 10% x (6 months / 12 months)]				$21,500
	(To record bond interest expense from April 1 to September 30 (6 months))
c. Dec. 31	Bond Interest expense                     [Total interest paid - Amortized premium = $10,750 - $215]			$10,535
	Premium on Bonds Payable   [($17,200 / 20 years) x (3 months x 12 months)]			$215
	Bond Interest Payable            [Principle amount x 10% = $430,000 x 10% x (3 months / 12 months)]				$10,750
	(To record bond interest expense from October 1 to December 31 (3 months))