For the two cases prepare all of the relevant journal entries from the time of s

Question

For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.)

P14-6 (L01,2) GROUPwORK (Issuance of Bonds between Interest Dates, Straight-Line, Redemption) Presented below are selected transactions on the books of Simonson Corporation. May 1, 2017 Bonds payable with a par value of $900,000, which are dated January 1, 2017, are sold at 106 plus accrued inter- est. They are coupon bonds, bear interest at 12% (payable annually at January 1), and mature January 1, 2027. (Use interest expense account for accrued interest.) Adjusting entries are made to record the accrued interest on the bonds, and the amortization of the proper amount of premium. (Use straight-line amortization.) Interest on the bonds is paid. Bonds with par value of $360,000 are called at 102 plus accrued interest, and redeemed. (Bond premium is to be amortized only at the end of each year.) Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized Dec. 31 Jan. 1,2018 April 1 Dec. 31

Explanation / Answer

ANSWER:

Particulars Debit Credit May-1, 2017 Cash 990,000 Bonds Payable 900,000 Premium on Bonds Payable (900,000 *6%) 54000 Interest Expense (900,000*12%*4/12) 36000 Dec-31, 2017 Interest Expense (900,000*12%) 108,000 Interest Payable 108,000 Premium on Bonds Payable 3,724.14 Interest Expense (54,000 * 8/116 = 3,724.14) 3,724.14 Jan-1, 2018 Interest Payable 108,000 Cash 108,000 Apr-1, 2018 Bonds Payable 360,000 Premium on Bonds Payable (54,000 x (360,000/900,000) x (105/116) = 19,551.72) 19,551.72 Interest Expense (360,000 x 12% x 3/12 = 10,800) 10,800 Cash (360,000 x 102% + 10,800 = 378,000) 378,000 Gain on Redemption of Bonds 12,351.72 Dec-31, 2018 Interest Expense ((900,000 - 360,000) *12%) 64,800 Interest Payable 64,800 Premium on Bonds Payable 3,910.34 Interest Expense (54,000*12/116*0.60 + 54,000*3/116*0.40) 3,910.34

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.