Presented below are selected transactions on the books of Simonson Corporation.

Question

Presented below are selected transactions on the books of Simonson Corporation.

May 1, 2010 - Bonds payable with a par value of $900,000, which are dated January 1, 2010, are sold at 106 plus accrued interest. They are coupon bonds, bear interest at 12% (payable annually at January 1), and mature January 1, 2020. (Use interest expense account for accrued interest.)

Dec 31 - 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.)

Jan. 1, 2011 - Interest on the bonds is paid.

April 1 - Bonds of par value of $360,000 are called at 102 plus accrued interest, and retired. (Bond premium is to be amortized only at the end of each year.)

Dec 31 - Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.


Instructions:
Prepare the journal entries for the transactions above.

Explanation / Answer

Date Accounts title Dr.$ Cr.$ 1-05-10 Cash 990,000.00 Bonds payable 900,000.00 Premium on bonds payable 54,000.00 Interest expense 36,000.00 31-12-10 Interest expense 108,000.00 Interest payable 108,000 Premium on bonds payable 3,724.14 Interest expense 3,724.14 1-01-11 Interest payable 108,000 Cash 108,000 1-04-11 Bonds payable 360,000.00 Premium on bonds payable 18,993.10* Interest expense 10,800.00** Cash Gain on retirement of bonds

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