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Chapter 14: 4E (page 755)

Celine Dion company issued $600,000 of 10%, 20- year bonds on January 1, 2017, at 102. Interest is payable semiannually on July 1 and January 1. Dion company uses the straight-line method of amortization for bond premium or discount.

Instructions:

Prepare the journal entries to record the following.

  1. The issuance of the bonds.
  2. The payment of interest and the related amortization on July 1, 2017.
  3. The accrual of interest and the related amortization on December 31, 2017.

Short Answer

Expert verified

The premium on bond payable is $12,000

Step by step solution

01

Meaning of Journal

The journal entry is a way of recording the business transaction in the books of account. The journal entry is based on a double-entry system; therefore, a transaction affects a minimum of two accounts.

02

Showing journal entries

Date

Accounts and Explanation

Debit ($)

Credit ($)

Jan 1, 2017

Cash

612,000

Bonds Payable

600,000

Premium on Bonds Payable

12,000

(To record issue of bonds)





July 1, 2017

Interest Expense

29,700

Premium on Bonds Payable ($12,000/40)

300


Cash

30,000

(To record interest and premium amortization)





Dec 31, 2017

Interest Expense

29,700

Premium on Bonds Payable ($12,000/40)

300


Cash

30,00

(To record interest and premium amortization)

Note:

Premium on bonds payable $12,000 is for 20 years, and on July 1, 2017, the premium on bonds is amortized for six months; that’s why it is divided by 40 (20 years*2).

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Most popular questions from this chapter

(Debtor/Creditor Entries for Continuation of Troubled Debt) Daniel Perkins is the sole shareholder of Perkins Inc., which is currently under protection of the U.S. bankruptcy court. As a “debtor in possession,” he has negotiated the following revised loan agreement with United Bank. Perkins Inc.’s \(600,000, 12%, 10-year note was refinanced with a \)600,000, 5%, 10-year note.

Instructions

(a) What is the accounting nature of this transaction?

(b) Prepare the journal entry to record this refinancing:

(1) On the books of Perkins Inc.

(2) On the books of United Bank.

(c) Discuss whether generally accepted accounting principles provide the proper information useful to managers and investors in this situation.

Using the same information as in E14-22 and E14-24, answer the following questions related to American Bank (creditor).

Instructions

  1. Compute the loss American Bank will suffer under this new term modification. Prepare the journal entry to record the loss on American’s books.
  2. Prepare the interest receipt schedule for American Bank after the debt restructuring.
  3. Prepare the interest receipt entry for American Bank on December 31, 2018, 2019, and 2020.
  4. What entry should American Bank make on January 1, 2021?

Briggs and Stratton recently issued debt with issue costs of $5.1 million. How should the costs of issuing these bonds be accounted for and classified in the financial statements?

BE14-2 (L01) The Colson Company issued $300,000 of 10% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson’s journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

When is the stated interest rate of a debt instrument presumed to be fair?
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