On January 1, 2012 Clive Davis Company sold 12% bonds having a maturity value of
ID: 2491000 • Letter: O
Question
On January 1, 2012 Clive Davis Company sold 12% bonds having a maturity value of $800,000 for $860,652 which provides the bondholders with a 10% effective yield. The bonds are dated January 1, 2012 and mature on January 1, 2017. Interest is payable annually on December 31st of each year. Clive Davis Company allocates interest and unamortized discount or premium using the effective interest method.
Use the Schedule of Interest Expense and Bond Premium Amortization of Question 19 as a reference.
The correct journal entries to record the interest payments and the amortizations for 2012 and 2014 are:
Explanation / Answer
A B C D E F G Date Interest Payment @12% Interest expenses at 10%*G Amortization of Bond C-B cr, balance in the a/c Bond Premiuma/c Credit balance in the Bond payable Carrying value of Bond F+E Credit cash Debit Interest Expense Bond Premiun 1-Jan-12 60652 800000 860652 Dec,31 2012 96000 86065 -9935 50717 800000 850717 Dec,31 2013 96000 85072 -10928 39789 800000 839789 Dec,31 2014 96000 83979 -12021 27768 800000 827768 Dec,31 2015 96000 82777 -13223 14545 800000 814545 Dec,31 2016 96000 81454 -14546 -1 800000 799999 Accounts Title Dr Cr 2012, Dec 31 Interest expense 86065 Amortization of Premium 9935 Cash 96000 31.12.2013 Interest expense 85072 Amortization of Premium 10928 Cash 96000 31.12.2014 Interest expense 83979 Amortization of Premium 12021 Cash 96000
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