Exercise 10-20 Prophet Company issued $675,000 6%, 30-year bonds on January 1 20
ID: 2591632 • Letter: E
Question
Exercise 10-20 Prophet Company issued $675,000 6%, 30-year bonds on January 1 2014, at 105 Interest is payable annually on January 1 Prophet uses straight-line amortization for 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.) (a) The issuance of the bonds. (b) The accrual of interest and the premium amortization on December 31, 2014. (c) The payment of interest on January 1, 2015 (d) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded No. Date Account Titles and Explanation Debit Credit (b) Dec. 31, 2014Explanation / Answer
SOLUTION:
In the books of Prophet Company
Journal
Working notes:
The annual amortization on bond = premium on Bonds/ Maturity period of bonds = 33750/30 = $1,125
Interest Payable = Bonds value at par*rate of interest
= 675000*6% = $40,500
Date Particulars Amount($) Debit Amount($) Credit January 1st,2014 Cash A/C 708750 Bonds Payable A/C 675000 Premium on Bonds Payable A/C 33750 Dec 31,2014 Interest Expense A/C 41625 Interest Payable A/C 40500 Premium on Bonds Payable A/C 1125 Jan 1st,2015 Interest payable A/C 40500 Cash A/C 40500 Jan 1st,2044 Bonds Payable A/C 675000 Cash A/C 675000Related Questions
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