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Problem 10-10A The following is taken from the Colaw Company balance sheet. COLAW COMPANY Balance Sheet...

Problem 10-10A

The following is taken from the Colaw Company balance sheet.

COLAW COMPANY
Balance Sheet (partial)
December 31, 2015
Current Liabilities
Interest payable (for 6 months from July 1 to December 31)
$123,705
Long-term Liabilities
Bonds payable, 9% due January 1, 2026
$2,749,000
Add: Premium on bonds payable
212,500
$2,961,500


Interest is payable semiannually on January 1 and July 1. The bonds are callable on any semiannual interest date. Colaw uses straight-line amortization for any bond premium or discount. From December 31, 2015, the bonds will be outstanding for an additional 10 years (120 months).

Journalize the payment of bond interest on January 1, 2016. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date
Account Titles and Explanation
Debit
Credit
Jan. 1, 2016

SHOW LIST OF ACCOUNTS
LINK TO TEXT

Prepare the entry to amortize bond premium and to pay the interest due on July 1, 2016, assuming no accrual of interest on June 30. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date
Account Titles and Explanation
Debit
Credit
July 1, 2016

SHOW LIST OF ACCOUNTS
LINK TO TEXT
LINK TO TEXT

Assume that on July 1, 2016, after paying interest, Colaw Company calls bonds having a face value of $1,099,600. The call price is 104. Record the redemption of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date
Account Titles and Explanation
Debit
Credit
July 1, 2016

SHOW LIST OF ACCOUNTS
LINK TO TEXT
LINK TO TEXT

Prepare the adjusting entry at December 31, 2016, to amortize bond premium and to accrue interest on the remaining bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2016

SHOW LIST OF ACCOUNTS
LINK TO TEXT
LINK TO TEXT

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Homework Answers

Answer #1
Date Account Titles and Explanation Debit Credit
Jan. 1, 2016 Interest payable $123705
Cash $123705
(To record interest paid)
July 1, 2016 Interest expense (123705-10625) $113080
Premium on bonds payable (212500/20) $10625
Cash (2749000*9%*6/12) $123705
(To record interest paid and amortize of premium)
July 1, 2016 Bonds payable $1099600
Premium on bonds payable (201875*1099600/2749000) $80750
Gain on bond redemption (1099600+80750-1143584) $36766
Cash (1099600/100*104) $1143584
(To record redemption of bonds)
Dec. 31, 2016 Interest expense (74223-6375) $67848
Premium on bonds payable (212500-10625-80750)/19 $6375
Interest payable (2749000-1099600)*9%*6/12 $74223
(To record accrued interest and amortization of premium)

Premium on bonds payable on July 1, 2016= $212500-10625= $201875

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