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