. On January 1, 2016, Flynn Corporation sold $600,000 of 8% bonds at $624,000. T
ID: 2473980 • Letter: #
Question
. On January 1, 2016, Flynn Corporation sold $600,000 of 8% bonds at $624,000. The bonds are due on January 1, 2021 and pay interest semiannually every July 1 and January 1. The bonds were sold to yield a 6% effective rate. Flynn closes its books annually on December 31. Required:
(a) Prepare the general journal entry to record the sale of the bonds.
(b) Prepare the general journal entry to record the interest payment on July 1, 2016, assuming that Flynn uses the straight-line method to amortize the bond premium.
(c) Prepare the general journal entry to record the interest accrual on December 31, 2016, assuming that Flynn uses the straight-line method to amortize the bond premium.
Explanation / Answer
Bonds book value at the start = $624000 Premium on bond $57759 is to be amortised to Interest exp.over life of the bond i.e.5 years using straight line method Per year premium amortisation amount =$4800 semi Annual Interest payment = ($600000 * 8%)/2 = $24000 Amortization schedule Period Cash Payment (Credit) Interest exp.(Debit) Premium on bonds Payable(Debit) Premium on payable balance Carrying Value At issue 24,000 6,24,000 01/07/2016 24000 21,600 2,400 21,600 6,21,600 01/01/2017 24000 21,600 2,400 19,200 6,19,200 Answer Journal Entries Date Account Title Debit Credit Jan.1,2016 Cash 6,24,000 Bonds payable 6,00,000 Premium on bonds 24,000 July 1,2016 Interest Expense 21600 Premium on Bonds 2400 Cash 24000 December 31,2016 Interest Expense 21600 Premium on Bonds 2400 Interest payable 24000
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