Frost Corporation issued $ 600,000 of face amount 10-year bonds on July 1, 20X4.

Question

Frost Corporation issued $ 600,000 of face amount 10-year bonds on July 1, 20X4. The bonds were issued at 103 and bear interest at the stated rate of 4% per annum, payable semiannually on July 1 and January 1. The premium is amortized by the straight-line method.

Prepare the journal entry to record the initial issue on July 1, 20X4. Show calculations.

Prepare the journal entry that would be recorded on each interest payment date. Show calculations.

Prepare the journal entry that Frost would record at the maturity of the bonds.

What was the total cash inflow from this bond issue?

What was the total cash outflow from this bond issue?

How is the difference between what you calculated for d) and e) recorded (how does it affect interest expense)?

Explanation / Answer

Journal entries

cash Outflow

Cash Inflow

Interest Expense will be differenec of outflow and inflow

Year Particulars L.F Debit ($) Credit ($) 20X4 Jul-01 Cash (600,000*1.03) 618000 Premium on Bonds payable (618,000-600,000) 18,000 Bonds payable 600,000 (for 4% Bonds issued at premium) Jan-01 Interest Expense 11,100 Premium on Bonds payable (18,000/20) 900 Cash (600,000*4%*6/12) 12,000 (for interest paid for 6 months and premium amortized) 20Y4 Jul-01 Bonds payable 600,000 Cash   600,000 (for bonds matured)

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