Solution :
a).
Amortization of the bonds premium semi annually = $ 250
Amortization of the bonds premium annually = 250 x 2
= $ 500
Bond premium = 500 x 10
= $ 5000
Par value bond = $100,000
Premium on the bonds = $ 6000
∴ Original price of the bonds = $ 106,000
b).
Original purchase price = $ 106,000
Semi annually periods from 1 Jan 20X5 to 31 Dec 20X7 = 3 yrs x 2 = 6 periods.
The premium amortization till 31st Dec, 20X7 = $ 250 x 6 = $1500
The balance of the bond investment account = $ 106,000 - $1500
= $ 104,500
c).
Event 1
Accounts Debit Credit
Bonds payable $100,000
Bonds premium (6000-1500) $4500
Interest income (5750 x 2) $ 11500
Investment in the Stallion Bonds $104,500
Interest expenses $ 11500
Event 2
Accounts Debit Credit
Interest payable $ 6000
Interest receivable $6000
