In: Accounting
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. |
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! |