Answer:
a. January 1, 2017, bonds are purchased at a premium
Dr Investment in bonds 300,000
Dr Premium on bonds receivable 22,744.44
Cr Cash 322,744.44
b.
Date Cash Interest Amortization Bond Carrying
received revenue of premium premium value
1/1/18 $36,000 $32,274.44 $3,725.56 $19,018.88 $280,981.12
1/1/19 $36,000 $31,904.89 $4,095.11 $14,923.77 $285,076.23
1/1/20 $36,000 $31,492.38 $4,507.62 $10,416.15 $289,583.85
1/1/21 $36,000 $31,041.61 $4,958.39 $5,457.76 $294,542.24
1/1/22 $36,000 $30,542.24 $5,457.76 $0 $300,000
amortization of bond premium = ($322,744.44 x 10%) - $36,000 = -$3,725.56
amortization of bond premium = ($319,018.88 x 10%) - $36,000 = -$4,095.11
amortization of bond premium = ($314,923.77 x 10%) - $36,000 = -$4,507.62
amortization of bond premium = ($310,416.15 x 10%) - $36,000 = -$4,958.39
amortization of bond premium = $10,416.15 - $4,958.39 = -$5,457.76
c.
December 31, 2017
Dr Interest receivable 36,000
Cr Interest revenue 32,274.44
Cr Premium on bonds receivable 3,725.56
d.
December 31, 2017
Dr Interest receivable 36,000
Cr Interest revenue 31,904.89
Cr Premium on bonds receivable 4,095.11
