exercise 14 - 8 (algo) straight - line: recording bond issuance and premium amortization lo p3\nwookie…

exercise 14 - 8 (algo) straight - line: recording bond issuance and premium amortization lo p3\nwookie company issues 9%, five - year bonds, on january 1 of this year, with a par value of $109,000 and semiannual interest payments.\nsemiannual period - end unamortized premium carrying value\n(0) january 1, issuance $8,291 $117,291\n(1) june 30, first payment 7,462 116,462\n(2) december 31, second payment 6,633 115,633\nuse the above straight - line bond amortization table and prepare journal entries for the following.\n(a) the issuance of bonds on january 1.\n(b) the first interest payment on june 30.\n(c) the second interest payment on december 31.\njournal entry worksheet\nrecord the issuance of the bonds on january 1.\nnote: enter debits before credits.\ndate general journal debit credit\njanuary 01

exercise 14 - 8 (algo) straight - line: recording bond issuance and premium amortization lo p3\nwookie company issues 9%, five - year bonds, on january 1 of this year, with a par value of $109,000 and semiannual interest payments.\nsemiannual period - end unamortized premium carrying value\n(0) january 1, issuance $8,291 $117,291\n(1) june 30, first payment 7,462 116,462\n(2) december 31, second payment 6,633 115,633\nuse the above straight - line bond amortization table and prepare journal entries for the following.\n(a) the issuance of bonds on january 1.\n(b) the first interest payment on june 30.\n(c) the second interest payment on december 31.\njournal entry worksheet\nrecord the issuance of the bonds on january 1.\nnote: enter debits before credits.\ndate general journal debit credit\njanuary 01

Answer

Explanation:

Step1: Journal entry for bond issuance on January 1

When bonds are issued at a premium, cash is debited for the carrying value, bonds payable is credited for the par - value, and the premium on bonds payable is credited for the difference. The par - value of the bonds is $109,000 and the carrying value at issuance is $117,291 (from the table), so the premium is $117,291 - $109,000 = $8,291.

Date General Journal Debit Credit
January 01 Cash $117,291
Bonds Payable $109,000
Premium on Bonds Payable $8,291

Step2: Journal entry for first interest payment on June 30

The semi - annual interest payment is calculated as $109,000×9%×\frac{6}{12}=$4,905. The amortization of the premium is the difference in unamortized premium from issuance to the first payment, which is $8,291 - $7,462 = $829. Interest expense is the interest payment minus the premium amortization, so $4,905 - $829 = $4,076.

Date General Journal Debit Credit
June 30 Interest Expense $4,076
Premium on Bonds Payable $829
Cash $4,905

Step3: Journal entry for second interest payment on December 31

The semi - annual interest payment is still $4,905. The amortization of the premium from the first payment to the second payment is $7,462 - $6,633 = $829. Interest expense is $4,905 - $829 = $4,076.

Date General Journal Debit Credit
December 31 Interest Expense $4,076
Premium on Bonds Payable $829
Cash $4,905

Answer:

Date General Journal Debit Credit
January 01 Cash $117,291
Bonds Payable $109,000
Premium on Bonds Payable $8,291
June 30 Interest Expense $4,076
Premium on Bonds Payable $829
Cash $4,905
December 31 Interest Expense $4,076
Premium on Bonds Payable $829
Cash $4,905