Q1/2015) Prepare journal entries for the following four events (use straight-lin

Question

Q1/2015) Prepare journal entries for the following four events (use straight-line amortization). 01/01/07 The Def Co. issued $100,000, five year bonds, carrying a coupon rate of ten percent (10%), interest payable annually on December 31 each year. Assume that the net proceeds from the issue of the bond were $2,000 different from the face value. The market rate of interest at the time of issue was nine percent(9%).

12/31/07 Recognize the first interest payment.

12/31/08 Recognize the second interest payment.

01/01/09 Redeem (i.e., buy back) twenty percent (20%) of the bonds outstanding for $19,500.

Explanation / Answer

Journal Entries Date Particulars Debit Credit $ $ 01-01-2007 Bank A/c            98,000 Discount on issue of Bond              2,000 To 10% Bond          100,000 31-12-2007 Interest A/c            10,000 Interest A/c                  400 To Bank A/c            10,000 To Discount on issue of Bond                  400 (10% of 100000 - interest and 2000/5 = 400 amortization) 31-12-2008 Interest A/c            10,000 Interest A/c                  400 To Bank A/c            10,000 To Discount on issue of Bond                  400 (10% of 100000 - interest and 2000/5 = 400 amortization) 01-01-2009 10% Bond 20000 To bank 19500 To Gain on buy back of Bond 500

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