Question

On January 1, 2021, Southerly Winds Inc. issued $350,000, 15-year, 5% bonds at 102. The issuance cost from the broker was $25,500 and the net proceeds were paid to Southerly Winds Inc. in cash. The bonds require interest payments annually every December 31.

Southerly Winds Inc. follows ASPE and amortizes the bond discount or premium using the straight-line method (ie: uses the amortized cost method of valuation).

Required: Prepare the entries for:

a). The bond issuance

b). The first interest payment and amortization

Answer 1

Southerly Winds
Journal Entries
Particular	Debit($)	Credit($)
Cash	331500
Cost Of issue	25500
To 5% Bonds		350000
To Premium on bonds		7000
( To record the bond issuance )
Interest Expense (350000*5%)	17500
To cash		17500
( To record Interest expense)
Premium On bonds (7000 / 15)	467
Amortization expense( p&l)	1233
To cost of issuance (25500 /15)		1700
( To record amortization)

Working :

Gross proceeds from issuance =

350000 * 102% = 357000

Brokers cost = $ 25500

Net proceeds =

357000 - 25500 = 331500