Question

E10-22 (Algo) Recording and Reporting a Bond Issued at a Premium (Straight-Line Amortization with Premium Account) LO10-5

On January 1 of this year, Victor Corporation sold bonds with a face value of $1,470,000 and a coupon rate of 9 percent. The bonds mature in four years and pay interest semiannually every June 30 and December 31. Victor uses the straight-line amortization method and also uses a premium account. Assume an annual market rate of interest of 8 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answers to whole dollars.)

Required:

1.&2. Prepare the journal entry to record the issuance of the bonds and the interest payment on June 30 of this year.

3. What bonds payable amount will Victor report on its June 30 balance sheet

Answer 1

	Bond Issue Price = Present value of Bond Face Value and Interest
	Face Value
	$1,470,000 x PV of $1 4%, 8
	$1,470,000 x 0.7307	$1,074,129
	Interest
	$66,150 x PVA of $1 4%, 8	$445,368
	$66,150 x 6.7327
	Issue Price	$1,519,497
1&2
Date	Account Titles and Explanation	Debit	Credit
Jan 1	Cash	$1,519,497
	Bonds Payable		$1,470,000
	Premium on Bonds Payable		$49,497
June 30	Interest Expense	$59,963
	Premium on Bonds Payable	$6,187		($49,497/4 years x 1/2)
	Cash		$66,150	($1,470,000 x 9% x 1/2)
3
	Bond Payable	$1,513,310
	($1,519,497 - $6,187)