Answer:
Swifty Company
a) Issuance of the bonds:
Debit Cash Account $460,560
Credit Bonds Payable $456,000
Credit Bonds Premium Amortization $4,560
To record the bonds issue and related premium.
b) Payment of interest and related amortization on July 1, 2020:
Debit Interest on Bonds $22,686
Debit Bonds Premium Amortization $114
Credit Cash Account $22,800
c) Accrual of interest and the related amortization on December 31, 2020:
Debit Interest on Bonds $22,686
Debit Bonds Premium Amortization $114
Credit Cash Account $22,800
Explanation:
The total cash received from the bonds issuance is $456,000 x 101% = $460,560. This amount includes the bonds premium amounting to $4,560, which is the difference between the amount received and the actual value of the bonds. This amount will be amortized on a straight-line basis over 20 years, semi-annually at $114.
