Burroughs Corporation (with a December 31 year-end) issued $450,000, 9.5% bonds
ID: 2570022 • Letter: B
Question
Burroughs Corporation (with a December 31 year-end) issued $450,000, 9.5% bonds due in 8 years on May 1, 2013. Interest is paid semi-annually on October 31 and April 30 of each year. On the issuance date, the market rate of interest was 8.5%, resulting in a price of $475,000 for these bonds. The premium/discount is amortized using the straight-line method. a) Is this bond issued at a discount or at a premium? Prepare the journal entry on May 1, 2013, to issue the bonds. b) Prepare the journal entry on October 31, 2013, to record the first interest payment and the amortization of the premium/discount. c) Prepare the adjusting entry on December 31, 2013. d) Show the balance sheet presentation of Bonds Payable and related accounts as at December 31, 2013.
Explanation / Answer
Answer:
a) Is this bond issued at a discount or at a premium? Prepare the journal entry on May 1, 2013, to issue the bonds.
this bond issued at a premium
journal entry on May 1, 2013
Date
Account Title and Explanation
Debit
Credit
May 1
Cash
475000
Bonds Payable
450000
Bonds Premium
25000
( to record the issue of the bond)
__________________________________________________________________
b) Prepare the journal entry on October 31, 2013, to record the first interest payment and the amortization of the premium/discount.
Date
Account Title and Explanation
Debit
Credit
Oct 31
Bond Interest Expenses
19812
Bonds Premium (25000/8*1/2)
1563
Cash (450000*9.5%*1/2)
21375
___________________________________________________________________
c) Prepare the adjusting entry on December 31, 2013.
Date
Account Title and Explanation
Debit
Credit
Dec 31
Bond Interest Expenses
6604
Bonds Premium (25000/8*2/12)
521
Bond Interest Payable (450000*9.5%*2/12)
7125
_____________________________________________________________________
d) Show the balance sheet presentation of Bonds Payable and related accounts as at December 31, 2013.
Bonds Payable
450000
Unamortized Premium
(25000-1563-521)
22916
Book Value
(450000-22916)
427084
Date
Account Title and Explanation
Debit
Credit
May 1
Cash
475000
Bonds Payable
450000
Bonds Premium
25000
( to record the issue of the bond)
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