Question

Taylor Company issued $100,000 of 13% bonds on January 1, 2019. The bonds pay interest semiannually on June 30 and December 31 and are due December 31, 2021.1. Assume the company sells the bonds for $102,458.71 to yield 12%. Prepare the journal entries to record the sale of the bonds and each 2019 semiannual interest payment and premium amortization, using the effective interest method.2. Assume the company sells the bonds for $97,616.71 to yield 14%. Prepare the journal entries to record the sale of the bonds and each 2019 semiannual interest payment and discount amortization, using the effective interest method.

Answer 1

Answer:

1. Assume the company sells the bonds for $102,458.71 to yield 12%. Prepare the journal entries to record the sale of the bonds and each 2019 semiannual interest payment and premium amortization, using the effective interest method.

January 1, 2019, bonds issued at a premium

Dr Cash 102,458.71

    Cr Bonds payable 100,000

    Cr Premium on bonds payable 2,458.71

June 30, first coupon payment

Dr Interest expense 6,147.52

Dr Premium on bonds payable 352.48

    Cr Cash 6,500

December 31, second coupon payment

Dr Interest expense 6,126.37

Dr Premium on bonds payable 373.63

    Cr Cash 6,500

amortization of bond premium = ($102,458.71 x 6%) - $6,500 = -$352.48

amortization of bond premium = ($102,106.23 x 6%) - $6,500 = -$373.63

2. Assume the company sells the bonds for $97,616.71 to yield 14%. Prepare the journal entries to record the sale of the bonds and each 2019 semiannual interest payment and discount amortization, using the effective interest method.

January 1, 2019, bonds issued at a discount

Dr Cash 97,616.71

Dr Discount on bonds payable 2,383.29

    Cr Bonds payable 100,000

   

June 30, first coupon payment

Dr Interest expense 6,833.17

    Cr Cash 6,500

    Cr Discount on bonds payable 333.17

December 31, second coupon payment

Dr Interest expense 6,856.49

    Cr Cash 6,500

    Cr Discount on bonds payable 356.49

amortization of bond discount = ($97,616.71 x 7%) - $6,500 = $333.17

amortization of bond discount = ($97,949.88 x 7%) - $6,500 = $356.49