Effective Interest Premium Amortization Polk Incorporated issued $130,000 of 13%

Question

Effective Interest Premium Amortization

Polk Incorporated issued $130,000 of 13% bonds on July 1, 2013, for $134,421.04. The bonds were dated January 1, 2013, pay interest on each June 30 and December 31, are due December 31, 2017, and were issued to yield 12%. Polk uses the effective interest method of amortization.

Required:

Prepare the journal entries to record the issue of the bonds on July 1, 2013, and the interest payments on December 31, 2013, and June 30, 2014. If an amount box does not require an entry, leave it blank. Round your answers to two decimal places, if necessary.

Prepare the journal entries to record the issue of the bonds on July 1, 2013, and the interest payments on December 31, 2013, and June 30, 2014. If an amount box does not require an entry, leave it blank. Round your answers to two decimal places, if necessary.

Explanation / Answer

1. issue of bond entry and amount in dollars

cash/bank a/c dr. 134421.04

To 13% bond a/c 130000

To securities premium a/c 4421.04

2. intrest due on dec 31 2013 entry is for 6 months on 130000

cash/bank a/c dr. 8450

To interest payable a/c 8450

Interest payable a/c dr. 8450

To profit and loss a/c 8450

this is transfer entry of interest

3. interest entry on june 30 2014 is

Cash/bank a/c dr. 8450

To interest payable a/c 8450

Interest payable a/c dr. 8450

To profit and loss a/c 8450

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