Homer Company borrowed money by issuing $1,500,000 of 6% bonds payable at 101.5

Question

Homer Company borrowed money by issuing $1,500,000 of 6% bonds payable at 101.5 on July 1, 2016 The bonds are five-year bonds and pay interest each January 1 and July 1 1. How much cash did Homer receive when it issued the bonds payable? Journalize this transaction 2. How much must Homer pay back at maturity? When is the maturity date? 3. How much cash interest will Homer pay each six months? 4. How much interest expense will Homer report each six months? Assume the straight-line amortization method. Journalize the entries for accrual of interest and amortization of premium on December 31, 2016, and payment of interest on January 1, 2017 1. How much cash did Homer receive when it issued the bonds payable? Journalize this transaction Homer received $ when the bonds payable were issued

Explanation / Answer

1. Cash received on issue of bonds payable = (1500000*101.5/100) = 1522500

2 Payback on maturiy = 1500000 ; maturity date = July 1 2021

3 Cash interest pay for each six month = (1500000*6%*6/12) = 45000

4) Interest expenses for each six month = 45000-(22500/10) = 42750

Journal entry :

date accounts & explanation debit credit 2016 dec 31 Interest expenses a/c 42750 Premium on bonds payable (22500/10) 2250        Interest payable a/c (1500000*6%*6/12) 45000 (To record accural of interest) 2017 Jan 1 Interest payable a/c 45000      Cash a/c 45000 (To record interest paid)

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