Adcock Company issued $600,000, 9%, 20-year bonds on January 1, 2017, at 103. In

Question

Adcock Company issued $600,000, 9%, 20-year bonds on January 1, 2017, at 103. Interest is payable annually on January 1. Adcock uses straight-line amortization for bond premium or discount.

Prepare the journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare the journal entry to record the accrual of interest and the premium amortization on December 31, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare the journal entry to record the payment of interest on January 1, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare the journal entry to record the redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

journal entry to record the issuance of the bonds

Dr Cash $618,000
Cr Bonds premium $18,000 (amortized over 20 periods)
Cr Bonds payable $600,000 (always face value)

Dr Interest expense $53,100
Dr Amortization Bonds premium $900 ($18000/20)
Cr Cash $54,000 ( $900,000 *6%)

journal entry to record the redemption of the bonds at maturity

Dr Bonds Payable 600,000

Cr Cash 600,000

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