Question

Bonds Payable Journal Entries; Effective Interest Amortization
On December 31, 2009, Kay Company issued $600,000 of five-year, 13% bonds payable for $650,798 yielding an effective interest rate of 10%. Interest is payable semiannually on June 30 and December 31. Prepare journal entries to reflect (a) the issuance of the bonds, (b) the semiannual interest payment and premium amortization (effective interest method) on June 30, 2010, and (c) the semiannual interest payment and premium amortization on December 31, 2010. Round amounts to the nearest dollar.

General Journal
Date	Description	Debit	Credit
a.)
Dec.31	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	$Answer	$Answer
	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	Bonds Payable	Answer	Answer
	To record issuance of bonds.
b.)
Jun.30	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	Premium on Bonds Payable	Answer	Answer
	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	To record semiannual interest payment and premium amortization.
c.)
Dec.31	Bond Interest Expense	Answer	Answer
	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	AnswerCashPremium on Bonds PayableBonds PayableBond Interest Expense	Answer	Answer
	To record semiannual interest payment and premium amortization.

Answer 1

Journal entry :

Date	accounts & explanation	debit	credit
Dec 31	Cash	650798
	Bonds payable		600000
	Premium on bonds payable		50798
	(To record bonds issue)
June 30	Interest expense (650798*10%*6/12)	32540
	Premium on bonds payable	6460
	Cash (600000*13%*6/12)		39000
	(To record interest)
Dec 31	Interest expense (650798-6460)*10%*6/12	32217
	Premium on bonds payable	6783
	Cash		39000
	(To record interest)