On January 1, 2014, Aumont Company sold 11% bonds having a maturity value of $63
ID: 2486597 • Letter: O
Question
On January 1, 2014, Aumont Company sold 11% bonds having a maturity value of $633,000 for $656,995, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2014, and mature January 1, 2019, with interest payable December 31 of each year. Aumont Company allocates interest and unamortized discount or premium on the effective-interest basis.
(a) Prepare the journal entry at the date of the bond issuance.
b) Prepare a schedule of interest expense and bond amortization for 2014–2016
(c) Prepare the journal entry to record the interest payment and the amortization for 2014.
Date Account Titles and Explanation Debit Credit January 1, 2014Explanation / Answer
Aumont Company Details Amt $ Bond Face value 633,000 Bond issue price 656,995 Bond premium = 23,995 Annual interest @11% 69,630 Effective interest rate 10% a Journal Entry of issue Date Account Title Dr $ Cr $ Jan1.2014. Bond Payable 633,000 Premium on Bond Payable 23,995 Cash 656,995 b Bond Amortization schedule 2014-16 Interest Paid Interest expense Amortization of Premium Unamortized premium Bond Payable Carrying Value of Bond Jan 1.2014 23,995 633,000 656,995 Dec 31.2014 69,630 65,700 3,931 20,065 633,000 653,065 Dec 31.2015 69,630 65,306 4,324 15,741 633,000 648,741 Dec 31.2016 69,630 64,874 4,756 10,985 633,000 643,985 c Date Account Title Dr $ Cr $ Dec 31.2014 Interest Payable 69,630 Interest Expense 65,700 Premium on Bond Payable 3,931 (recording interest expense & payable) Interest Payable 69,630 Cash 69,630 (recording interest paid) Dec 31.2016 Interest Payable 69,630 Interest Expense 64,874 Premium on Bond Payable 4,756 (recording interest expense & payable) Interest Payable 69,630 Cash 69,630 (recording interest paid)
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