Problem 2 Edmonton Corp. issued 5-year, 9.5% bonds with a face value of $700,000
ID: 2556365 • Letter: P
Question
Problem 2 Edmonton Corp. issued 5-year, 9.5% bonds with a face value of $700,000 on January 1, 2018, for $726,000. The bonds pay interest on June 30 and December 31 of each year. Will the bonds be issued at Par, at a Premiut or at a Discount? 2. In the journal paper provided, prepare the Journal Entry to record the 1. issuance of the bonds. 3. In the journal paper provided, prepare the Journal Entries to record interest on June 30, 2018 AND on December 31, 2018 using the Straight Line method of amortization. Show how the bonds and any related accounts will appear on the December 31, 2018 Financial Statements. 4. DATE ACCOUNTS DEBIT CREDITExplanation / Answer
1. Since the Bonds are issues at a price i.e. $726,000 which is more than the face value i.e. $700,000, hence the bonds will be issued at a premium of $26,000.
2. Journal entry for recording issuance of bonds will be as follows:
3. When a company issues bonds at a premium or discount, the amount of bond interest expense recorded each period differs from bond interest payments. A premium decreases the amount of interest expense we record semi-annually. Here the premium amount will also be amortised using the straight-line method. Journal entries to record the same will be as follows:
4. On December 31, 2018 interest amount will be transferred to P&L Account resulting in reduction of net profit. Bonds Payable and balance of Premium on Bonds Payable will be shown in Balance Sheet under the head long term liabilites as follows:
Date Account Debit Credit Jan 1 2018 Cash 726,000 Bonds Payable (Face value of bonds) 700,000 Premium on Bonds Payable 26,000 (Amount received less face value of Bonds)Related Questions
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