Celine Dion Company issued $1,092,000 of 10%, 20-year bonds on January 1, 2014,

Question

Celine Dion Company issued $1,092,000 of 10%, 20-year bonds on January 1, 2014, at 102. Interest is payable semiannually on July 1 and January 1. Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.

Prepare the journal entries to record the following. (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.)

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

Explanation / Answer

Journal Entries:

Calculation of Interest Expenses on July 1:

Semi Annual Interest = 9.7705 / 2 = 4.88525%

Interest Expenses = 1,113,840 x 4.88525% = $54,414

Interest at Stated Rate = 1,092,000 x 5% = 54,600

On Dec 31 = 1,113,654 x 4.88525% = $54,405

Date Account Title Debit Credit Jan 1 2014 Cash 1,113,840 Bond Payable 1,092,000 Premium on Bonds Payable 21,840 July 1 2014 Interest Expenses 54,414 Premium on Bonds Payable 186 Cash 54,600 Dec 31 2014 Interest Expenses 54,405 Accrued Interest 54,405 (For accrual of Interest)

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