Question 3 (15 points) Alpha Company uses the straight line method for amortizat

Question

Question 3 (15 points) Alpha Company uses the straight line method for amortization of all bond premium & discounts. During fiscal year 2016 Alpha had the following bond payable transactions January 2, issued ten, $1,000 bonds at 102 1/2. These 5 year bonds are dated January 1, 2016. July 1, Alpha issued $500,000 of 10%, 10-year bonds. The bonds are dated January 1, 2016 were October 1, Alpha issued 10 year bonds $10,000 face value bonds for S10,860 cash. The bonds The contract interest rate is 6%. Interest is payable setni annual on January 1 and July 1 issued at SS 1/2, and pay interest on July I and January 1 have a stated rate of S%. Interest is payable on Octber 1 and April 1. Use this information to prepare General Journal entries, without explanations, for the three bonds issued and any interest accruals and payments for the fiscal year 2016. Three 12/31/16 transaction dates are provided for the fiscal year accruals. One for each individual bond issue. (Round all calculations to nearest whole dollar.)

Explanation / Answer

Date Account titles Debit Credit 2016 Jan. 2 Cash (10*102.5) 1025 6% bond payable 1000 Premium on bonds payable 25 (Bond issued at premium) July. 1 Interest expense 27.5 Premium on bonds payable (25/5)*1/2-Amortization of premium 2.5 Cash (1000*6%*1/2) 30 (Payment of interest along with amortization of bond premium) July. 1 Cash (500000/100)*88.5 442500 Discount on bonds payable 57500 10% bond payable 500000 (Bond issued at discount) Oct. 1 Cash 10860 8% bond payable 10000 Premium on bonds payable 860 (Bond issued at premium) Dec. 31 Interest expense 27.5 Premium on bonds payable (25/5)*1/2-Amortization of premium 2.5 Interest payable (1000*6%*1/2) 30 (Interest accrued on 6% bond) Dec. 31 Interest expense 27875 Discount on bonds payable (57500/10)*1/2-Amortization of discount 2875 Interest payable (500000*10%*1/2) 25000 (Interest accrued on 10% bond) Dec. 31 Interest expense 119 Premium on bonds payable (860/10)*2/12 14 Interest payable (10000*8%*2/12)-Amortization of premium 133 (Interest accrued on 8% bond)

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