1. Walker Corporation issued 14%, 5-year bonds with a par value of $5,000,000 on
ID: 2359204 • Letter: 1
Question
1. Walker Corporation issued 14%, 5-year bonds with a par value of $5,000,000 on January 1, 2010. Interest is to be paid semiannually on each June 30 and December 31. The bonds were issued at $5,368,035 cash when the market rate for this bond is 12% (a) Prepare the general journal entry to record the issuance of the bonds on January 1, 2010. (b) Show how the bonds would be reported on Walker's balance sheet at January 1, 2010. (c) Assume that Walker uses the effective interest method for amortizing any discount or premium on bonds. Prepare the general journal entry to record the first semiannual interest payment on June 30, 2010. (d) Assume instead that Walker uses the straight-line method for amortizing any discount or premium on bonds. Prepare the general journal entry to record the first semiannual interest payment on June 30, 2010.Explanation / Answer
(a)
1/1/10
Cash...........................................................
5,368,035
Premium on Bonds Payable...................
368,035
Bonds Payable.......................................
5,000,000
(b)
Long-term liabilities:
Bonds Payable............................................
$5,000,000
Plus Unamortized Premium on Bonds
Payable...............................................
368,035
$5,368,035
(c)
6/30/10
Bond Interest Expense................................
322,082
Premium on Bonds Payable........................
27,918
Cash......................................................
350,000
Calculations:
Interest expense = $5,368,035 x 0.12 x ½ = $322,082
Cash = $5,000,000 x 0.14 x ½ = $350,000
Premium amortized = $350,000 - $322,082 = $27,918
(d)
6/30/10
Bond Interest Expense..................................
313,196.50
Premium on Bonds Payable..........................
36,803.50
Cash......................................................
350,000.00
Calculations:
Cash = $5,000,000 x 0.14 x ½ = $350,000.00
Premium amortized = $368,035/10 = $36,803.50
Interest expense = $350,000.00 - $36,803.50 = $313,196.50
(a)
1/1/10
Cash...........................................................
5,368,035
Premium on Bonds Payable...................
368,035
Bonds Payable.......................................
5,000,000
(b)
Long-term liabilities:
Bonds Payable............................................
$5,000,000
Plus Unamortized Premium on Bonds
Payable...............................................
368,035
$5,368,035
(c)
6/30/10
Bond Interest Expense................................
322,082
Premium on Bonds Payable........................
27,918
Cash......................................................
350,000
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