Question

On January 1, 2020, Pearl Company sold 11% bonds having a maturity value of $400,000 for $415,163, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each year. Pearl Company allocates interest and unamortized discount or premium on the effective-interest basis.
A. Prepare a schedule of interest expense and bond amortization for 2020-2022.
Date Account Titles and Explanation Debit Credit
January 1, 2020 Cash 518,953
Bonds Payable 500,000
Premium on Bonds Payable 18953
B. Prepare the journal entry to record the interest payment and the amortization for 2020.
Schedule of Interest Expense and Bond Premium Amortization
Effective-Interest Method
Date Cash Interest Premium Carrying Amount
Paid Expense Amortized of Bonds
1/1/20
12/31/20 55000
12/31/21 55000
12/31/22 55000
C. Prepare the journal entry to record the interest payment and the amortization for 2022.
Date Account Titles and Explanation Debit Credit
December, 31 51895
Premium on Bonds Payable
Cash

Answer 1

Answer:

I will start with B and C)

The journal entry to record bond issuance:

January 1, 2020, bonds issued at a premium

Dr Cash 415,163

    Cr Bonds payable 400,000

    Cr premium on bonds payable 15,163

December 31, 2020, first coupon payment

Dr Interest expense 41,616.30

Dr Premium on bonds payable 2,383.70

    Cr Cash 44,000

amortization of bond premium = (415,163 x 10%) - 44,000 = 2,383.70

December 31, 2021, second coupon payment

Dr Interest expense 41,277.93

Dr Premium on bonds payable 2,722.07

    Cr Cash 44,000

amortization of bond premium = (412,779.30 x 10%) - 44,000 = 2,722.07

December 31, 2023, third coupon payment

Dr Interest expense 41,005.72

Dr Premium on bonds payable 2,994.28

    Cr Cash 44,000

amortization of bond premium = (410,057.23 x 10%) - 44,000 = 2,994.28

A) I used an excel spreadsheet to prepare the amortization schedule

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