Question
In: Accounting
On January 1, 2020, ABC Ltd. sold five year, 6% bonds with a face value of...
On
January 1, 2020, ABC Ltd. sold five year, 6% bonds with a face
value of $ 400,000. Interest will be paid semi-annually on June 30
and December 31. The bonds were sold for $ 417,505 to yield 5%.
Using the effective-interest method of amortization of bond
discount or premium, prepare the journal entries for 2020.
Solutions
Expert Solution
| Date | Account Titles | Debit | Credit | |
| Jan. 1 | Cash | $ 417,505 | ||
| 2020 | Bonds Payable | $ 400,000 | ||
| Premium on Bonds Payable | $ 17,505 | |||
| Date | Account Titles | Debit | Credit | |
| Jun. 30 | Interest Expense | $ 10,438 | =417505*5%*1/2 | |
| 2020 | Premium on Bonds Payable | $ 1,562 | ||
| Interest Payable | $ 12,000 | =400000*6%*1/2 | ||
| Dec. 31 | Interest Expense | $ 10,399 | =(417505-1562)*5%*1/2 | |
| 2020 | Premium on Bonds Payable | $ 1,601 | ||
| Interest Payable | $ 12,000 |
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LINK TO TEXT
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