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In: Accounting

Nicholas Ram Corporation have a $2,400,000 "bond issue" dated March 1, 2016 due in 15 years...

Nicholas Ram Corporation have a $2,400,000 "bond issue" dated March 1, 2016 due in 15 years with an annual interest rate of 9%. Interest is payable March 1 and September 1. On August 1, 2016, the bond was sold for $2,496,250 plus accrued interest.

Using the straight-line method, prepare the general journal entries for each of the following:

a) The issuance of the bond on August 1, 2016.
b) Payment of the semi-annual interest and the amortization of the premium on September 1, 2016.
c) Accrual of the interest and the amortization of the premium on December 31, 2016.
d) Payment of the semi-annual interest and the amortization of the premium on March 1, 2017.

Solutions

Expert Solution

Date Account Titles Debit Credit
Aug-01 Cash 2586250
Premium on Bonds Payable 96250
Bonds Payable 2400000
Bond Interest Payable 90000
Sep-01 Bond Interest Expenses 17450 =104700/6
Premium on Bonds Payable 550 =3300/6
Bond Interest Payable 90000
Cash 108000
Dec-01 Bond Interest Expenses 69800 =104700*4/6
Premium on Bonds Payable 2200 =3300*4/6
Bond Interest Payable 72000
2017
Mar-01 Bond Interest Payable 34900 =104700*2/6
Bond Interest Expenses 72000
Premium on Bonds Payable 1100 =3300*2/6
Cash 108000
Working :
Cash Price :
Issue Price of Bond 2496250
Add : Accrued interest ( 5 months ) 90000
Total 2586250
Face Value of Bond 2400000
Less : Issue Price 2496250
Premium 96250
Coupon Rate 9%
Bonds Maturity Period 15 Years
Semi Annual Interest = 2,400,000 * 9% / 2
= $ 108,000
Semi Annual Interest Expenses and Premium Amortization
Premium 96250
Amortization Months ( 15*12-5) 175
Per Month amortization 550
Semiannual Premium Amortization 3300
Semiannual Interest Expenses ( 108,000-3,300) 104700
Thank You!
Please comment for any query!

ekkarill92 answered 2 years ago
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