Exercise 10-21 Sandhill Co. issued $480,000, 9%, 15-year bonds on December 31, 2

Question

Exercise 10-21

Sandhill Co. issued $480,000, 9%, 15-year bonds on December 31, 2016, for $460,800. Interest is payable annually on December 31. Sandhill uses the straight-line method to amortize bond premium or discount.

Prepare the journal entries to record the following events. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2031

(a) The issuance of the bonds. (b) The payment of interest and the discount amortization on December 31, 2017. (c) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Explanation / Answer

Dec-31-16 Cash 460800 Discount on bonds payable 19200        Bonds payable 480000 Dec-31-17 Interest expense 44480      Discount on bonds payable 1280 =19200/15      Cash 43200 =480000*9% Dec-31-31 Bonds payable 480000      Cash 480000

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