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Chapter 14: Q4BE (page 753)

Assume the bonds in BE14-2 were issued at 103. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line amortization semi-annually.

Short Answer

Expert verified

The total for both the debit and credit sides is $339,000.

Step by step solution

01

Meaning of Amortization of Premium:

Reducing the amount of bond premium periodically by charging the same to interest expenses account is known as amortization of premium. It reduces the interest expense of the issuer of the bond.

02

Journal Entries

Colson Company
Journal Entries

Date

Accounts and Explanation

Debit

Credit

January 1, 2017

Cash

$309,000

Bonds Payable

$300,000

Premium on Bonds Payable

$9,000

July 1, 2017

Interest expenses

$14,100

Premium on Bonds Payable

$900

Cash

$15,000

December 31, 2017

Interest expenses

$14,100

Premium on Bonds Payable

$900

Interest Payable

$15,000

Working:

Interest expenses on January 1, 2017 = ($300,000 x 103%) = $309,000

Interest expenses paid cash on July 1, 2017 = ($300,000 x 10% x 1/12) = $15,000

Premium on bonds payable amortize semi-annually = ($9,000/10) =$900

Interest payable on December 31, 2017 = ($300,000 x 10% x 1/12) = $15,000

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Most popular questions from this chapter

Samson Corporation issued a 4-year, \(75,000, zero-interest-bearing note to Brown Company on January 1, 2017, and received cash of \)47,664. The implicit interest rate is 12%. Prepare Samson’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest.

(a) In a troubled-debt situation, why might the creditor grant concessions to the debtor?

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Question: Zopf Company sells its bonds at a premium and applies the effective-interest method in amortizing the premium. Will the annual interest expense increase or decrease over the life of the bonds? Explain.

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