Alpha Company uses the straight-line method for amortization of all bond premium

Question

Alpha Company uses the straight-line method for amortization of all bond premium & discounts. During fiscal year 2017 Alpha had the following bond payable transactions:

January 2, issued ten, $1,000 bonds at 101. These 5-year bonds are dated January 1, 2017. The contract interest rate is 6%.  Interest is payable semi-annual on January 1 and July 1.

July 1, Alpha issued $400,000 of 10%, 10-year bonds.  The bonds are dated January 1, 2017 were issued at 90, and pay interest on July 1 and January 1.

October 1, Alpha issued 10-year bonds $10,000 face value bonds for $10,860 cash. The bonds have a stated rate of 8%. Interest is payable on October 1 and April 1.

Use this information to prepare General Journal entries for the three bonds issued and any interest accruals and payments for the fiscal year 2017. (Round all calculations to nearest whole dollar.)

Explanation / Answer

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Date Account Description Debit Credit 2-Jan Cash $    10,100 Premium on Issue of Bond $        100 Bond Payable $ 10,000 1-Jul Interest Expenses $          290 Premium on Issue of Bond $            10 Cash $        300 31-Dec Interest Expenses $          290 Premium on Issue of Bond $            10 Interest Payable $        300 (Being Interest accrued )

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