Question

On January 1, 2016, Sheldon Unlimited issues 12%, 15-year bonds payable with a face value of $250, 000. The bonds are issued at 106 and pay interest on June 30 and December 31.
1. Journalize the issuance of the bonds on January 1, 2016.
2. Journalize the semiannual interest payment and amortization of bond premium on June 30, 2016.
3. Journalize the semiannual interest payment and amortization of bond premium on December 31, 2016.
4. Journalize the retirement of the bond at maturity.

Answer 1

Answer:

1. Date        Account Title and Explanation      Debit         Credit

January 1       Cash                                             $265,000  

2016               Premium on bonds payable                          $15,000

                      Bonds payable                                               $250,000

                (To record Issuance of bonds )  

2 . Date        Account Title and Explanation      Debit         Credit

June 30         Bond interest expense              $14,500  

2016                Premium on bonds payable         $500  

                       Cash                                                                  $15,000

(Interest on bond paid and Premium amortized)  

3 . Date        Account Title and Explanation      Debit         Credit

Dec 31          Bond interest expense                   $14,500  

2016              Premium on bonds payable            $500  

                                  Cash                                                    $15,000

     (Interest on bond paid and Premium amortized)  

4.   Date        Account Title and Explanation      Debit         Credit

Dec 31 2030     Bonds payable                  $250,000  

                              Cash                                                       $250,000

                     (Bond redeemed)  

Working  

Bond issue price (250000 / 100*106)                            $265,000

Face value                                                                         $250,000

Premium on bonds payable                                              $15,000

Number of Interest payments (15 years x 2)              30 period

Discount/ premium to be amortized per Half year          $500.00

Interest on bond                                                                 $15,000.00

Interest expense to be recorded                                       $14,500

(15000-500)