Celine Dion Company issued $1,200,000 of 12% 10 year bonds on January 1, 2017 at

Question

Celine Dion Company issued $1,200,000 of 12% 10 year bonds on January 1, 2017 at 103 Interest is payable semiannually on July 1 and January 1. Dion Company uses the effective interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705% (market interest rate at issurance). Instructions: Prepare the journal entries to record the following. (Round to the nearest dollar.) (a) The issuance of the bonds. Jan 1, 17 (b) The payment of interest and related amortization on July 1, 2017. Jul 1, 17 (c) The accrual of interest and the related amortization on December 31, 2017. Dec 31, 17 Celine Dion Company issued $1,200,000 of 12% 10 year bonds on January 1, 2017 at 103 Interest is payable semiannually on July 1 and January 1. Dion Company uses the effective interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705% (market interest rate at issurance). Instructions: Prepare the journal entries to record the following. (Round to the nearest dollar.) (a) The issuance of the bonds. Jan 1, 17 (b) The payment of interest and related amortization on July 1, 2017. Jul 1, 17 (c) The accrual of interest and the related amortization on December 31, 2017. Dec 31, 17

Explanation / Answer

Jan-01 Cash 1236000       Bonds payable 1200000       Premium on bonds payable 36000 Jul-01 Interest expense 60382 =1236000*9.7705%/2 Premium on bonds payable 11618       Cash 72000 =1200000*12%/2 Dec-31 Interest expense 59814 Premium on bonds payable 12186       Interest payable 72000

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