Adcock Company issued $600,000, 9%, 20-year bonds on January 1, 2015, at 103. In

Question

Adcock Company issued $600,000, 9%, 20-year bonds on January 1, 2015, at 103. Interest is payable semiannually on July 1 and January 1. Adcock uses straight-line amortization for bond premium or discount.

Prepare the journal entry to record the issuance of the bonds.

Prepare the journal entry to record the payment of interest and the premium amortization on July 1, 2015, assuming that interest was not accrued on June 30.

Prepare the journal entry to record the accrual of interest and the premium amortization on December 31, 2015.

Prepare the journal entry to record the redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Explanation / Answer

a) Journal entry to record issuance of bond Account Name Debit ($) Credit ($) Cash 618000 Bond payable 600000 Premium on bond payable 18000 b) The payment of interest and the premium amortization on July 1, 2015, assuming that interest was not accrued on June 30 600000*9/100*1/2= 27000 18000/20 year*1/2 = 450 27000-450 = 26550 Interest Exp Account Name Debit ($) Credit ($) Interest Exp 26550 Premium on bond payable 450 Bond interest payable 27000 c) The accrual of interest and the premium amortization on December 31, 2015 Account Name Debit ($) Credit ($) Interest Exp 26550 Premium on bond payable 450 Bond interest payable 27000 d) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded Account Name Debit ($) Credit ($) Bond payable 600000 Cash 600000

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