Presented below are selected transactions on the books of Simonson Corporation.
ID: 2493338 • Letter: P
Question
Presented below are selected transactions on the books of Simonson Corporation.
May 1, 2014 : Bonds payable with a par value of $963,600, which are dated january 1, 2014 are sold at 106 plus accrued interest. They are coupon bonds, bear interest at 10% (payable annually at January 1), and mature january 1, 2014. (Use interest expense account for accrued interest.)
Dec. 31 : Adjusting entries are made to record the accrued interest on the bonds, and the amortization of the proper amount of premium. (Use straight-line amortization.)
Jan. 1, 2015: Interst on the bonds is paid.
April 1 : Bonds with par value of $369,300 are called at 102 plus accrued interest, and redeemed. (Bond premium is to be amortized only at the end of each year.)
Dec. 31 : Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.
Prepare journal entries for the transactions above. (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.)
Interest Payable
(to record the interest)
Interst Expense
(to amortize the premium)
Interst Payable
(to record the interest(
Interest Expense
(to amortize the premium
Date Acct. Title Debit Credit May 1, 2014 Cash 1,053,536 Bonds Payable 963,600 Interst Expense 32,120 Premium on Bonds Payable 57,816 Dec. 31, 2014 Interest Expense 96,360Interest Payable
(to record the interest)
96,360 Premium on Bonds Payable ?Interst Expense
(to amortize the premium)
? Jan. 1, 2015 Interst Payable 96,360 Cash 96,360 Apr. 1, 2015 Bonds Payable 369,300 Premium on Bonds Payable ? Interest Expense 9233 Cash ? Gain on redemption of Bonds ? Dec. 31, 2015 Interst Expense 59,430Interst Payable
(to record the interest(
59,430 Premium on Bonds Payable ?Interest Expense
(to amortize the premium
?Explanation / Answer
Assumin the life of bond for 2 years. As the maturity date given Jan1, 2014 but this is a date which has already occured. So answer asked for two years. using SLM the premium is $57816 and life is 2 years so each year premium on bond payable will be 57816/2=$28908. If the bond is for say 10 years than the amortization schedule is $5718.6 per year
31.dec 2014 Premium on Bond payabee a/c Dr $28908
Interest Expense a/c $28908
Par value is $369300. so if issued at premium 369300/100*102=$376686 plus accured interest (369300*10%*3/12)= $9233 So cash is $385919
Carrying amount of a bond payable equals the face value of the bond less any discount or plus any premium left fo rthe life of the bond= 369300+(28908/963600*369300)=$11079+369300=$380379
31.dec 2015 Premium on Bond payable a/c Dr $17829
Interest Expense a/c $17829
(The amount will be 28908-11079=17829 which will be charged to interset expense)
Apr. 1, 2015 Bonds Payable 369,300 Premium on Bonds Payable 11079 Interest Expense 9233 Cash 385919 Gain on redemption of Bonds 3693Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.