Question

Date		Cash Paid		Interest expense		Premium Amortization		Carrying Amount of Bonds

Intel Inc. is the pioneer in the manufacture of microprocessor for computers. On 4/1/2016, Intel issued $800,000 of 12% face value bonds for $851,705.70. The bonds are due in 4 years, and pay interest semiannually on September 30 and March 31. Intel sold the bonds to yield 10%.

Use the spreadsheet found in the link at the bottom to prepare a bond interest expense and premium amortization schedule using the straight-line method.

Use the attached spreadsheet to prepare a bond interest expense and premium amortization schedule using the effective interest method.

Prepare any adjusting entries for the end of the fiscal year, December 31, 2016, using the: straight-line method of amortization effective interest method of amortization

Assume the company retires the bonds on June 30, 2017, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: straight-line method of amortization effective interest method of amortization.

Answer 1

Bond interest expense and premium amortization schedule using the straight-line method

Journal Entries:

On 31tst January 2016

Cash A/c Dr. $ 851706

To Bonds Payable $ 800000

To Premium on bonds payable $ 51706

On 30th June 2016

Interest Expense Dr $ 41537

Premium on Bonds Payable Dr $ 6463

To Cash a/c $ 48000

On 31st December 2016

Interest Expense Dr $ 41537

Premium on Bonds Payable Dr $ 6463

To Cash a/c $ 48000

Bond interest expense and premium amortization schedule using the effective interest method:

Adjusting entries using the effective interest method of amortization:

On 30th June 2016

Interest Expense Dr $ 42585

Premium on Bonds Payable Dr $ 5415

To Cash a/c $ 48000