straight-line amortization of bond premium ordiscount Four Seasons issues $2,000

Question

straight-line amortization of bond premium ordiscount

Four Seasons issues $2,000,000 of 8%, 4-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,950,000.

Required

1. Prepare the January 1, 2017, journal entry to record the bonds’ issuance.

2. For each semiannual period, compute (a) the cash payment,(b) the straight-line premium or discount amortization,(c)the bond interest expense( d). Unamortized premium or

discount, and bond carrying value.

3. Determine the total bond interest expense to be recognized

over the bonds’ life.

4. Prepare a bond amortization table using the straight-linemethod.

5.Prepare the journal entries to record all the interest payments.

6. Record the journal entry to record the payback of the bond at maturity

Explanation / Answer

Solution 1:

Solution 2:

Solution 3:

Bond interest expense to be recognized over life of bond = $86,250 * 8 = $690,000

Solution 4:

Solution 5:

Solution 6:

Journal Entries - Four Seasons Date Particulars Debit Credit 1-Jan-17 Cash Dr $1,950,000.00 Discount on issue of bond Dr $50,000.00          To Bond Payable $2,000,000.00 (To record bond issue at discount)

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