Caruba Company issued $300,000, 6%, 20-year bonds on January 1, 2012, at 103. In

Question

Caruba Company issued $300,000, 6%, 20-year bonds on January 1, 2012, at 103. Interest is payable semiannually on July 1 and January 1. Caruba uses straight-line amortization for bond premium or discount. Prepare the journal entries to record the following. (a) The issuance of the bonds. (b) The payment of interest and the premium amortization on July 1, 2012, assuming that interest was not accrued on June 30. (c) The accrual of interest and the premium amortization on December 31, 2012. (d) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Explanation / Answer

(a) The issuance of the bonds.

Cash A/c Dr.       309000

To Bond payable                      300000

To Premium on bond payable     9000

(b) The payment of interest and the premium amortization on July 1, 2012, assuming that interest was not accrued on June 30.

interest Expenses A/c Dr.             8775

Premium on bond payable a/c Dr.   225

To cash                                                     9000

(c) The accrual of interest and the premium amortization on December 31, 2012.

interest Expenses A/c Dr.             8775

Premium on bond payable a/c Dr.   225

To Interest Payable                                                     9000

(d) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Bond payable a/c Dr.   300000

To cash                                              300000

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