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Here is the infor for WK4
Bonds Issued At A Premium Bunkichi Corporation issued the following bonds at a premium:
Date of issue and sale March 1, 20
Principal amount $800,000
Sale price of bonds 103
Denomination of bonds $1,000
Life of bonds 10 years
Stated rate 8% payable semiannually on August 31 and February 28
1. Prepare journal entries for:
a. Issuance of bonds at a premium
b. Interest payment and premium amortization on the bonds on August 31, 20.
c. Year end adjustment on the bonds for20-1.
d. Reversing entry for the beginning of 20-2.
e. Interest payments and premium amortization on the bonds for 20-2
2. Calculate the carrying value of the bonds on August 31, 20-2
SOLUTION
1. Prepare journal entries for:
a. Issuance of bonds at a premium
DEBIT CREDIT
Cash $824,000
Bonds Payable $800,000
Bonds Payable Premium $ 24,000
b. Interest payment and premium amortization on the bonds on August 31, 20.
DEBIT CREDIT
Interest Expense $30,800
Bonds Payable Premium $ 1,200
Interest Payable $20,000
c. Year end adjustment on the bonds for20-1.
DEBIT CREDIT
Interest Expense $20,533
Bonds Payable Premium $ 800
Interest Payable $21,333
d. Reversing entry for the beginning of 20-2.
DEBIT CREDIT
Interest Payable $21,333
Bonds Payable Premium $ 800
Interest Expense $20,533
e. Interest payments and premium amortization on the bonds for 20-2
Interest expense Interest Payment Premium amortization
February $10,667 $32,000 $400
August $30,800 $32,000 $1,200
December $20,533 NIL $800
2. Calculate the carrying value of the bonds on August 31, 20-2
Principal amount Bonds Premium
March 01, 20 $800,000 $24,000
August 31, 20 ($1,200)
February 28, 20-1 ($1,200)
August 31, 20-1 ($1,200)
February 28, 20-2 ($1,200)
August 31, 20-2 ($1,200)
Book Value on August 31, 20-2 $800,000 $18,000
Total $816,000
