On June 30, 2017, Pharoah Company issued $3,100,000 face value of 13%, 20-year b

Question

On June 30, 2017, Pharoah Company issued $3,100,000 face value of 13%, 20-year bonds at $3,333,211, a yield of 12%. Pharoah uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.

(a) Prepare the journal entries to record the following transactions. (Round 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.) (1) The issuance of the bonds on June 30, 2017.

(2) The payment of interest and the amortization of the premium on December 31, 2017.

(3) The payment of interest and the amortization of the premium on June 30, 2018.

(4) The payment of interest and the amortization of the premium on December 31, 2018.

Explanation / Answer

Amortization Schedule Year Cash interest premium Carrying interest expense amortized value 6.50% 6% 6/30/2017 3,333,211 12/31/2017 201,500 199993 1,507 3,331,704 6/30/2018 201,500 199902 1598 3330106 12/31/2018 201,500 199806 1694 3328412 interest paid = 3,100,000*6.5% 201500 12/31/2017 interest expense = 3,333,211*6% 199993 6/30/2018 interest expense = 3331704*6% 199902.2 12/31/2018 interest expense = 3330106*6% 199806.4 Journal Entry Date Accounting title & Explanations Debit Credit 2017 30-Jun Cash 3,333,211 premium on bonds payable 233,211 Bonds payable 3,100,000 31-Dec interest expense 199,993 premium on bonds payable 1,507 cash 201,500 2018 6/30/2018 interest expense 199,902 premium on bonds payable 1,598 cash 201,500 12/31/2019 interest expense 199,806 premium on bonds payable 1,694 cash 201,500

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