Question

Presto Company issued $240,000, 9%, 20-year bonds on January 1, 2012, at 103. Interest is payable...

Presto Company issued $240,000, 9%, 20-year bonds on January 1, 2012, at 103. Interest is payable semiannually on July 1 and January 1. Presto uses straight-line amortization for bond premium or discount. Interest is not accrued on June 30.

Instructions: Prepare the journal entries to record the following.

a. The issuance of the bonds.

b. The payment of interest and the premium amortization on July 1, 2012.

c. The accrual of interest and the premium amortization on December 31, 2012.

d. The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Business   Accounting   
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Answer #1

Journal entry :

No Date account and explanation debit credit
a Jan 1,2012 Cash (240000*1.03) 247200
Bonds payable 240000
premium on bonds payable 7200
(To record bond issue)
b July 1,2012 Interest expense 10620
premium on bonds payable (7200/40) 180
Cash (240000*9%*6/12) 10800
(To record interest paid)
c Dec 31,2012 Interest expense 10620
premium on bonds payable 180
Interest payable 10800
(To record accured interest)
d Jan 1,2032 Bonds payable 240000
cash 240000
(To record bond maturity)
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