*P10-9A Elkins Company sold $2,500,000, 8%, 10-year bonds on July 1, 2011.The bo
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Question
*P10-9A Elkins Company sold $2,500,000, 8%, 10-year bonds on July 1, 2011.The bonds were dated July 1, 2011, and pay interest July 1 and January 1. Elkins Company uses the straight-line method to amortize bond premium or discount. Assume no interest is accrued on June 30.Instructions
(a) Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2011, assuming that the bonds sold 104.
(b) Prepare journal entries as in part (a) assuming that the bonds sold at 98.
(c) Show balance sheet presentation for each bond issue at December 31, 2011.
Explanation / Answer
Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2011, assuming that the bonds sold at 104. (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3, 2.) July 1, 2011 Dr Cash 2,600,000 Cr Bonds Payable 2,500,000 Cr Premium on Bonds Payable 100,000 Dec 31, 2011 Dr Bond Interest Expense 95,000 Dr Premium on Bonds Payable 5,000 Cr Bond Interest Payable 100,000 Prepare journal entries as in the previous part of the question assuming that the bonds sold at 98. (For multiple debit/credit entries, list amounts from largest to smallest e.g. 10, 5, 3, 2.) July 1, 2011 Dr Cash 2,450,000 Dr Discount on Bonds Payable 50,000 Cr Bonds Payable 2,500,000 Dec 31, 2011 Dr Bond Interest Expense 102,500 Cr Bond Interest Payable 100,000 Cr Discount on Bonds Payable 2,500 Show balance sheet presentation for each bond issue at December 31, 2011. (Enter all amounts as positive amounts and subtract where necessary.) For the first one you would have a debit balance of 2,600,000 in Cash under Assets. Credit balance of 2,500,000 in Bonds Payable under Liabilities Credit balance of 95,000 in Premium on Bonds Payable under Liabilities Credit balance of 100,000 in Bond Interest Payable under Liabilities. Bond Interest Expense of 95,000 would go on the income statement and decrease equity. For the second one, the amounts will be different but the accounts will be the same, except there will be a debit balance in Discount on Bonds Payable instead of the credit balance in Premium on Bonds Payable.
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