Celine Dion Company issued $864,000 of 10%, 20-year bonds on January 1, 2014, at

Question

Celine Dion Company issued $864,000 of 10%, 20-year bonds on January 1, 2014, at 102. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight-line method of amortization for bond premium or discount.

Prepare the journal entries to record the following. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a) The issuance of the bonds. (b) The payment of interest and the related amortization on July 1, 2014. (c) The accrual of interest and the related amortization on December 31, 2014.

Explanation / Answer

Par value of Bonds: 864,000 Issue price @102 881280 Premium on Issue 17,280 Interest periods (20*2) 40 Premium Amortized in each period 432 Cash Interest (864,000*10%*6/12) 43200 Journal Entries: Date Accounts title and explanations Debit $ Credit $ Jan 12014 Cash Account Dr. 881,280          Bonds payable Account 864,000           Premium on Bonds payable 17,280 Jul 1 2014 Interest expense Account Dr. 42768 Premium on Bonds payable Dr. 432        Cash Aaccount 43200 Dec 312014 Interest expense Account Dr. 42768 Premium on Bonds payable Dr. 432          Interest payable Account 43200

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