Champeau Company sold $2,500,000, 8%, 25-year bonds on January 1, 2012. The bond
ID: 2358307 • Letter: C
Question
Champeau Company sold $2,500,000, 8%, 25-year bonds on January 1, 2012. The bonds were dated January 1, 2012, and pay interest on January 1. Champeau Company uses the straight-line method to amortize bond premium or discount. a) Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2012, assuming that the bonds sold at 102. b) Prepare journal entries as in part (a) assuming that the bonds sold at 96. C) Show the balance sheet presentation for the bond issue at December 31, 2012, using (1) the 102 selling price, and then (2) the 96 selling price.Explanation / Answer
a.
2,500,000*1.02 = 2,550,000
50,000/25 = 2,000
2,500,000*.08 = 200,000
January 1, 2012
Debit: Cash 2,550,000
Credit: Bonds payable 2,500,000
Credit: Premium on bonds payable 50,000
December 31, 2012
Debit: Interest expense 198,000
Debit: Premium on bonds payable 2,000
Credit: Interest payable 200,000
b.
2,500,000*.96= 2,400,000
100,000/25 = 4,000
January 1, 2012
Debit: Cash 2,400,000
Debit: Discount on bonds payable 100,000
Credit: Bonds payable 2,500,000
December 31, 2012
Debit: Interest expense 204,000
Credit: Discount on bonds payable 4,000
Credit: Interest payable 200,000
c.
(1)
Long-term liabilities
Bonds payable, 8%..........2,500,000
Premium on bonds payable......48,000....2,548,000
(2)
Long term liabiliites
Bonds payable, 8%..........2,500,000
Discount on bonds payable.....96,000....2,404,000
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