Sandhill Company issued $576,000 of 10%, 20-year bonds on January 1, 2017, at 10

Question

Sandhill Company issued $576,000 of 10%, 20-year bonds on January 1, 2017, at 102. Interest is payable semiannually on July 1 and January 1. Sandhill Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.

Prepare the journal entries to record the following. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

(a) The issuance of the bonds. (b) The payment of interest and related amortization on July 1, 2017. (c) The accrual of interest and the related amortization on December 31, 2017.

Explanation / Answer

Journal entry :

Date accounts & explanation debit credit 1/1/17 Cash (576000*1.02) 587520 Bonds payable 576000 Premium on bonds payable 11520 (To record issue bonds payable) 7/1/17 Interest expense (587520*9.7705%*6/12) 28702 Premium on bonds payable 98 Cash (576000*5%) 28800 (To record interest) 12/31/17 Interest expense (587520-98)*9.7705%*6/12 28697 Premium on bonds payable 103 Interest payable 28800 (To record interest)

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