Record the appropriate journal entry to reflect the following : Bonds payable in

Question

Record the appropriate journal entry to reflect the following: Bonds payable info: The principal amount (a.k.a. face value, par value, stated value) of these bonds = $150,000. These bonds have a 10 year term. The stated rate (a.k.a. contract rate, nominal rate, contract rate) of interest on these bonds = 5%.Theses bonds are dated July 1, 20XX (current year) and were sold on July 1, 20XX (current year) for the sum of $156,000. Interest on these bonds is to be paid semi-annually on January 1 and July 1 of each year. An entry needs to be made for December 31’s accrued interest due and for the appropriate amount relating to the amortization of the premium (use straight-line amortization for this premium). A checkwill be written and issued for the appropriate amount of interest due on January 1.

Explanation / Answer

Solution:

Journal Entries Date Particulars Debit Credit 1-Jul Cash Dr $156,000.00      To Bond payable $150,000.00      To Premium on Bond Payable $6,000.00 (Being bond issued on premium) 31-Dec Interest Expense Dr $3,450.00 Premium on bond payable Dr ($6,000/10*6/12) $300.00       To Interest Payable ($150,000*5%*6/12) $3,750.00 (Being interest expense and premium amortization on bond recorded) 1-Jan Interest Payable Dr $3,750.00      To Cash $3,750.00 (Being interest payment on bond recorded)

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