Amortization of bond premium journal entry

BE14-13

Samson Corporation issued a 5year, $81,500, zero-interest-bearing note to Brown Company on January 1, 2014, and received cash of $48,366. The implicit interest rate is 11%.

Prepare Samson’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest.

(a) Cash 48366

Discount on Notes Payable 33,134

81500 - 48366

Notes Payable 81500

(b) Interest Expense 5320

48366*11%

Discount On Notes Payable 5320

E14-3

1. On January 1, 2014, Simon Company issued $264,000 of 8%, 10 year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1.

2. On June 1, 2014, Garfunkel Company issued $135,600 of 12%, 10 year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1.

For each of these two independent situations, prepare journal entries to record the following.

Simon Company:

1/1/14 (a) The issuance of the bonds.

Cash 264,000

Bonds Payable 264,000

7/1/14 (b) The payment of interest on July 1.

Interest Expense 5280

264000*8%*3/12

Cash 5,280

12/31/14 (c) The accrual of interest on December 31.

Interest Expense 5,280

Interest Payable 5,280

Garfunkel Company:

6/1/14 (a) The issuance of the bonds.

Cash 142,380

135600 + 6780

Bonds Payable 135,600

Interest Expense 6,780

135600*12%*5/12

(b) The payment of interest on July 1.

Interest Expense 8136

135600*12%*6/12

Cash 8,136

(c) The accrual of interest on December 31.

Interest Expense 8,136

Interest Payable 8,136

E14-4

Celine Dion Company issued $852,000 of 8%, 20 year bonds on January 1, 2014, at 101. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight-line method of amortization for bond premium or discount.

Prepare the journal entries to record the following.

(a) The issuance of the bonds.

1/1/14 Cash 860520

852000*101%

Bonds Payable 852000

Premium on Bonds Payable 8520

860520-852000

(b) The payment of interest and the related amortization on July 1, 2014.

7/1/14 Interest Expense 33867

34080-213

Premium on Bonds Payable 213

8520/40

Cash 34080

852000*8%*6/12

(c) The accrual of interest and the related amortization on December 31, 2014.

12/31/14 Interest Expense 33,867

Premium on Bonds Payable 213

Interest Payable 34,080

E14-5

Celine Dion Company issued $780,000 of 10%, 20 year bonds on January 1, 2014, at 102. Interest is payable semiannually on July 1 and January 1. Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.

Prepare the journal entries to record the following.

(a) The issuance of the bonds.

1/1/14 Cash 795,600

780000*102%

Bonds Payable 780,000

Premium on Bonds Payable 1,560

795600-780000

(b) The payment of interest and related amortization on July 1, 2014.

7/1/14 Interest Expense 38,867

795600*9.7705%*1/2

Premium on Bonds Payable 133

Cash 39,000

780000*10%*6/12

(c) The accrual of interest and the related amortization on December 31, 2014.

12/31/14 Interest Expense

795467*9.7705%*1/2 38,861

Premium on Bonds Payable 139

Interest Payable 39,000

795000

39000-38867 = 133 133

795467

E14-8

(a) CeCe Winans Corporation incurred the following costs in connection with the issuance of bonds: (1) printing and engraving costs, $13,940; (2) legal fees, $53,720, and (3) commissions paid to underwriter, $79,960.

What amount should be reported as Unamortized Bond Issue Costs, and where should this amount be reported on the balance sheet?

Amount to be reported as Unamortization Issue Costs 147,620

13940+53720+79960

(C) Ron Kenoly Inc. issued $605,800 of 8%, 10 year bonds on June 30, 2014, for $530,304. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30.

If Kenoly uses the effective interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2014.

530204*0.10*4/12