Question

On June 30, 2010, Mackes Company issued $5,000,000 face value of 13%, 20-year bonds at $5,376,150 to yield 12%. The bonds pay semiannual interest on June 30 and December 31.

(a) Prepare the journal entries to record the following transactions:

1- The issuance of the bonds on June 30, 2010

2- The payment of interest and the amortization of the premium on December 31, 2010

3- The payment of interest and the amortization of the premium on June 30, 2011

4- The payment of interest and the amortization of the premium on December 31, 2011

(b) Show the proper statement of financial position presentation for the liability for bonds payable on the December 31, 2011, statement of financial position.

(c) Provide the answers to the following questions:

1- What amount of interest expense is reported for 2011?

2- Determine the total cost of borrowing over the life of the bond.

Answer 1

Date	Particulars	Debit($)	Credit($)
Jun. 30, 2020	Cash A/c Dr.	5,376,150
	To Bonds Payable A/c		5,000,000
	To Premiumon Bonds Payable A/c		376,150
Dec. 31, 2020	Bond Interest Expense A/c Dr.($5,376,150*6%)	322,569
	Premium on Bonds Payable A/c Dr.	2139
	To Cash A/c ($5,000,000*6.5%)		324,708
Jun. 30, 2021	Bond Interest Expense A/c Dr.(($5,376,150 - $2139)*6%)	322,441
	Premium on Bonds Payable A/c Dr.	2,267
	To Cash A/c		324,708
Dec. 31, 2021	Bond Interest Expense A/c Dr.(($5,376,150 -$2139-$2267)*6%)	322,305
	Premium on Bonds Payable A/c Dr.	2,403
	To Cash A/c		324,708