Wempe Co. sold $3,335,000, 10%, 10-year bonds on January 1, 2014. The bonds were

Question

Wempe Co. sold $3,335,000, 10%, 10-year bonds on January 1, 2014. The bonds were dated January 1, 2014, and pay interest on January 1. The company uses straight-line amortization on bond premiums and discounts. Financial statements are prepared annually.

No.

Date

Account Titles and Explanation

Debit

Credit

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Annual
Interest
Periods

Interest to
Be Paid

Interest Expense
to Be Recorded

Premium
Amortization

Unamortized
Premium

Bond
Carrying Value

Annual
Interest
Periods

Interest to
Be Paid

Interest Expense
to Be Recorded

Premium
Amortization

Unamortized
Premium

Bond
Carrying Value

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No.

Date

Account Titles and Explanation

Debit

Credit

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WEMPE Co.
Balance Sheet (Partial)
December 31, 2014

WEMPE Co.
Balance Sheet (Partial)
December 31, 2014

Prepare the journal entries to record the issuance of the bonds assuming they sold at: (1) 103 and (2) 96. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.

Date

Account Titles and Explanation

Debit

Credit

1. 1/1/14

2. 1/1/14

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Explanation / Answer

Wempe Company   Details Bond Issue @103 Bond Issue @96 Bond Par Value                    3,335,000                   3,335,000 Annual Interest @10%                      333,500                      333,500 Bond Issue Price                    3,435,050                   3,201,600 Bond premium                      100,050 Bond Discount                      133,400 Bod life in years                                10                                 10 Amortization of premium /discount per year                        10,005                         13,340 Amortization Schedule For the Bond @103 Year   Interest Payable Interest Expense Premium Amortized Unamortized premium Bond Payable Carrying Value of Bond Year 2014         100,050       3,335,000        3,435,050 Year 2015                      333,500                      323,495                     10,005            90,045       3,335,000        3,425,045 Year 2016                      333,500                      323,495                     10,005            80,040       3,335,000        3,415,040 Year 2017                      333,500                      323,495                     10,005            70,035       3,335,000        3,405,035 Year 2018                      333,500                      323,495                     10,005            60,030       3,335,000        3,395,030 Year 2019                      333,500                      323,495                     10,005            50,025       3,335,000        3,385,025 Year 2020                      333,500                      323,495                     10,005            40,020       3,335,000        3,375,020 Year 2021                      333,500                      323,495                     10,005            30,015       3,335,000        3,365,015 Year 2022                      333,500                      323,495                     10,005            20,010       3,335,000        3,355,010 Year 2023                      333,500                      323,495                     10,005            10,005       3,335,000        3,345,005 Year 2024                      333,500                      323,495                     10,005                     -         3,335,000        3,335,000 Amortization Schedule For the Bond @96 Year   Interest Payable Interest Expense Discount Amortized Unamortized discount Bond Payable Carrying Value of Bond Year 2014         133,400       3,335,000        3,201,600 Year 2015                      333,500                      346,840                     13,340         120,060       3,335,000        3,214,940 Year 2016                      333,500                      346,840                     13,340         106,720       3,335,000        3,228,280 Year 2017                      333,500                      346,840                     13,340            93,380       3,335,000        3,241,620 Year 2018                      333,500                      346,840                     13,340            80,040       3,335,000        3,254,960 Year 2019                      333,500                      346,840                     13,340            66,700       3,335,000        3,268,300 Year 2020                      333,500                      346,840                     13,340            53,360       3,335,000        3,281,640 Year 2021                      333,500                      346,840                     13,340            40,020       3,335,000        3,294,980 Year 2022                      333,500                      346,840                     13,340            26,680       3,335,000        3,308,320 Year 2023                      333,500                      346,840                     13,340            13,340       3,335,000        3,321,660 Year 2024                      333,500                      346,840                     13,340                     -         3,335,000        3,335,000 Journal entries Issue of Bond @103 Date   Account title Dr $ Cr $ Jan 1.2014. Cash                  3,435,050 Bond Payable                   3,335,000 Premium on Bond Payable                      100,050 Issue of Bond @96 Jan 1.2014. Cash                  3,201,600 Bond Payable                   3,335,000 Discount on Bond Payable                      133,400 Journal entries Interest expense Bond @103 Date   Account title Dr $ Cr $ Dec 31.2014. Interest expense                        323,495 Interest Payable                      333,500 Premium on Bond Payable                        10,005 Interest expense Bond @96 Dec 31.2014. Interest expense                        346,840 Interest Payable                      333,500 Discount on Bond Payable                         13,340 Long term Liabilities presentation at Dec 31.2014. Issue of Bond @103 Bond Payable                    3,335,000 Add Premium on Bond Payable (LT maturity part)                        90,045 Total Long term Bond Payable                    3,425,045 Long term Liabilities presentation at Dec 31.2014. Issue of Bond @96 Bond Payable                    3,335,000 Less Long term Maturity part of Discount on Bond                      120,060 Total Long term Bond Payable                    3,214,940

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