Presented below are selected transactions on the books of Simonson Corporation.

Question

Presented below are selected transactions on the books of Simonson Corporation.

Prepare journal entries for the transactions above. (Round answers to 0 decimal places, e.g. 38,548. 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.)

Date

Account Titles and Explanation

Debit

Credit

May 1, 2014

Dec. 31, 2014

(To record the interest)

(To amortize the premium)

Jan. 1, 2015

Apr. 1, 2015

Dec. 31, 2015

(To record the interest)

(To amortize the premium)

May 1, 2014 Bonds payable with a par value of $988,800, which are dated January 1, 2014, are sold at 106 plus accrued interest. They are coupon bonds, bear interest at 10% (payable annually at January 1), and mature January 1, 2024. (Use interest expense account for accrued interest.) Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the amortization of the proper amount of premium. (Use straight-line amortization.) Jan. 1, 2015 Interest on the bonds is paid. April 1 Bonds with par value of $374,800 are called at 103 plus accrued interest, and redeemed. (Bond premium is to be amortized only at the end of each year.) Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.

Explanation / Answer

Notes

Premium on bonds payable = (106/100) * 988800 -988800 = $59328

Note 1:

Amortization of premium = $59328 / 10 = $5933 per year

Note 2:

[(106/100) * 374800 - 374800] -premium amortized in the last year on $374800 bonds= $22488 - $2249 = $20239

Note 3:

= (3/12)*374800*10% = $9370

Note 4:

Premium on issue of bonds - premium on redemption of bonds - bond premium already amprtized

= $22488 - [(103/100) * $374800 -374800] - $2249

= $22488 - $11244 - $2249

= $8995

Note 5:

Interest will be payable on the rest of the bond for whole year

= (988800 - 374800)*10%

= $61400

Note 6:

Balance in premium on bonds payable account = 59328-5933-22488 = $ 30907

Amortization per year for next 9 years = 30907/9 = $3434

Date Account Title and explanation Debit ($) Credit ($) May 1 2014 Cash 1081088 Bonds Payable 988800 Premium on bonds payable 59328 interest expense 32960 (to record issue of 9888 bonds , $100 par, at a premium of $6 per bond and with accrued interest for 4 months calculated as 10%*$988800*(1/3) = $32960) Dec 31, 2014 Interest Expense 98880 Interest Payable 98880 (interest for one year acrrued and recorded = 10%*988800 = $98880) Premium on bonds payable 5933 Interest Expense 5933 Note 1 (amortization of premium) Jan1, 2015 Interest Payable 98880 Cash 98880 (interest paid to bond holders) Apr 1, 2015 Bonds Payable 374800 Premium on bonds payable 20239 Note 2 interest expense 9370 Note 3 cash 395414 gain on redemption of bonds 8995 Note 4 (Bonds issued at $106 redeemed at $103) Dec 31, 2015 Interest Expense 61400 Interest Payable 61400 Note 5 (interest payable recorded) Premium on bonds payable 3434 Interest expense 3434 Note 6 (amortization of premium on bonds payable)

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