Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method Describ

Question

Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method

Describe the characteristics and terminology of bonds payable., 3Journalize entries for bonds payable.

Yang Corporation wholesales repair products to equipment manufacturers. On May 1, 2014, Yang Corporation issued of , bonds at a market (effective) interest rate of , receiving cash of . Interest is payable semiannually on May 1 and November 1. Journalize the entries to record the following:

a. Issuance of bonds on May 1, 2014.

b. First interest payment on November 1, 2014, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.)

Explanation / Answer

Premium on bond payable = 22842560-20000000=2842560

Semiannual amortization of bond premium = 2,842,560 * 1/10 *6/12 = 142128

Date Account title Debit credit May 1 2014 Cash 22,842,560 Bond payable 20,000,000 Premium on bond payable 2,842,560 [issuance of bond ] Nov 1 2014 Interest expense     [900,000-142128] 757,872 Premium on bond payable 142,128 cash   [20,000,000*.09*6/12) 900,000

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