Question

In: Finance

On January 1, Year 1, Sayers Company issued $273,000 of five-year, 5 percent bonds at 102....

On January 1, Year 1, Sayers Company issued $273,000 of five-year, 5 percent bonds at 102. Interest is payable semiannually on June 30 and December 31. The premium is amortized using the straight-line method.

Required
Prepare the journal entries to record the bond transactions for Year 1 and Year 2. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Date General Journal Debit Credit
Jan 01

Record the interest expenses and amortization for bonds payable.

Jun 30 same chart

Record the interest expenses and amortization for bonds payable.

Dec 31

  • Record the interest expenses and amortization for bonds payable.

JUN 30

Record the interest expenses and amortization for bonds payable.

Dec 31

Solutions

Expert Solution

Bond face value = $273000

Bond issue price = $273000 * 103 / 100 = $281190

Bond premium = Bond issue price - Bond face value

Bond premium = $281190 - $273000 = $8190

Under the straight line method, bond premium is amortized over the life of the bond. Here,

Bond premium = $8190, Life of the bond = 5 * 2 = 10 semi annual years

Straight line amortization of bond premium = $8190 / 10 = $819

Semi annual cash payment of interest = 5% * $273000 * 6 /12 = $6825

Interest expense under straight line method is:

Interest expense = Cash paid for interest – Premium amortization

Interest expense = $6825 - $819 = $6006

Now, required journal entries are:

Date General Journal Debit Credit
January 1 Year 1 Cash $281190
Bonds payable $273000
Premium on bonds payable $8190
(for bonds issued at premium)
Jun30, Year 1 Interest expense $6006
Premium on bonds payable $819
Cash $6825
(for interest paid and premium amortized)
Dec 31, Year 1 Interest expense $6006
Premium on bonds payable $819
Cash $6825
(for interest paid and premium amortized)
Jun 30, Year 2 Interest expense $6006
Premium on bonds payable $819
Cash $6825
(for interest paid and premum amortized)
Dec 31, Year 2 Interest expense $6006
Premium on bonds payable $819
Cash $6825
(for interest paid and premium amortized)

jeff jeffy answered 1 year ago
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