QUESTION Not yet answered Points out of 16.00 P Flag question Bonds Payable Jour

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QUESTION Not yet answered Points out of 16.00 P Flag question Bonds Payable Journal Entries; Effective Interest Amortization On December 31, 2009, Kay Company issued $600,000 of five-year, 13% bonds payable for $650,798 yielding an effective interest rate of 10%. Interest is payable semiannually on June 30 and December 31. Prepare journal entries to reflect (a) the issuance of the bonds, (b) the semlannual Interest payment and premium amortization (effective interest method) on june 30, payment and premiu 2010, and (c) the semiannual Interest m amortization on December 31, 2010. Round amounts to the nearest dollar. General Journal Date Description Debit Credit Dec.31 Bonds Payable To record issuance of bonds. Jun.30 Premium on Bonds Payable

Explanation / Answer

ANSWER

A] DEC 31 Cash A/c Dr $650798

To Prenium On Bond Payable $50798

To Bond Payable $600,000

( Issuance Of Bond )

B] JUNE 30 Interest Payment A/c Dr. $ 32540 ( 650798*10%*6/12)

Prenium On Bond Payable Dr. $ 6460

To Cash A/c $ 39000 ( 600000*13%*6/12)  

( To Semi annual Interest payment and Prenium amortisation )

C] DEC 31 Bond Interest Expense A/c Dr. $ 32217 ( {650798-6460}*10%*6/12)

Prenium On Bond Payable Dr. $ 6783

To Cash A/c $ 39000 (same as above )   

( To Semi annual Interest payment and Prenium amortisation )

Notes

1 Prenium Amortisation On bond can also be calculated as :-

JUNE 30 Interest payment - Yield To amortised

  Interest payment = par value * Rate of interest * Semi annual /12

= 600000*13%*6/12

= $ 39000

Yield To amortised = issue amount * Yield rate /semi annual

= $ 650798*10%/2

= $ 32540

Prenium Amortisation = $ 39000 - $32540

= $ 6460

FOR DEC 31 Same as above

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