Answer:
a. Prepare the journal entry at the date of the bond purchase.
January 1, 2020, bonds purchased at a premium
Dr Bonds receivable 300,000
Dr Premium on bonds receivable 22,744.44
Cr Cash 322,744.44
b. Prepare a bond amortization schedule.
Date Interest Cash Premium Unamortized Carrying
revenue received amortization premium value
1/1/20 - -322,744.44 - 22,744.44 277,255.56
1/1/21 32,274.44 36,000 3,725.56 19,018.88 280,981.12
1/1/22 31,901.89 36,000 4,098.11 14,920.77 285,079.23
1/1/23 31,492.08 36,000 4,507.92 10,412.85 289,587.15
1/1/24 31,041.23 36,000 4,958.77 5,454.08 294,545.92
1/1/25 30,545.92 336,000 5,454.08 0 0
c. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2020.
Dr Interest receivable 36,000
Cr Interest revenue 32,274.44
Cr Premium on bonds receivable 3,725.56
(322,744.44 x 10%) - (300,000 x 12%) = 32,274.44 - 36,000 = 3,725.56
d. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2021.
Dr Interest receivable 36,000
Cr Interest revenue 31,901.89
Cr Premium on bonds receivable 4,098.11
(319,018.88 x 10%) - (300,000 x 12%) = 31,901.89 - 36,000 = 4,098.11
amortization year 3:
(314,920.77 x 10%) - (300,000 x 12%) = 31,492.08 - 36,000 = 4,507.92
amortization year 4:
(310,412.85 x 10%) - (300,000 x 12%) = 31,041.23 - 36,000 = 4,958.77
amortization year 5:
5,454.08
