Problem 10-5A Straight-Line: Amortization of bond premium and discount LO P1, P2

Question

Problem 10-5A Straight-Line: Amortization of bond premium and discount LO P1, P2, P3

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Legacy issues $630,000 of 9.0%, four-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. They are issued at $571,310 and their market rate is 12% at the issue date.

Problem 10-5A Part 1

Required:

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

3. Prepare a straight-line amortization table for the bonds' first two years.

4. Prepare the journal entries to record the first two interest payments.

Total bond interest expense over life of bonds: Amount repaid payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense

Explanation / Answer

1 Cash 571310 Discount on bonds payable 58690         Bonds payable 630000 2 Amount repaid: 8 payments of $28350 170100 Par value at maturity 630000 Total repaid 800100 Less amount borrowed 571310 Total bond interest expense 228790 3 Semiannual Period-end Unamortized discount carrying Value 01-01-2017 58690 571310 06/30/2017 51354 578646 12/31/2017 44018 585982 06/30/2018 36682 593318 12/31/2018 29346 600654 4 06/30/2017 Interest expense 35686          Discount on bonds payable 7336           Cash 28350 12/31/2017 Interest expense 35686          Discount on bonds payable 7336           Cash 28350

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