Answer:
Pina Company
Journal Entries:
Debit Cash $2,928,977
Credit 12% Bonds Payable $2,500,000
Credit Bonds Premium $428,977
To record the proceeds from the bonds issue, the bonds liability, and the premium.
June 30:
Debit Interest expense $146,449
Debit Amortization of premium $3,551
Credit Cash $150,000
To record the first interest payment and amortization of bonds premium.
December 31:
Debit Interest expense $146,271
Debit Amortization of Premium $3,729
Credit Cash $150,000
To record the second interest payment and amortization of bonds premium.
Explanation:
a) Data and Calculations:
Face value of 12% bonds = $2,500,000
Proceeds from bonds issue 2,928,977
Premium = $428,977
Coupon rate = 12%
Market yield rate = 10%
June 30:
Cash payment = $150,000 ($2,500,000 * 6%)
Interest expense $146,449 ($2,928,977 * 5%)
Amortized Premium 3,551 ($150,000 - $146,449)
Bonds value = $2,925,426 ($2,928,977 - $3,551)
December 31:
Cash Payment = $150,000 ($2,500,000 * 6%)
Interest expense $146,271 ($2,925,426)
Amortized premium 3,729 ($150,000 - $146,271)
Bonds value = $2,921,697 ($2,925,426 - $3,729)
