Question

Woodwick Company issues 7%, five-year bonds, on December 31, 2016, with a par value of $94,000 and semiannual interest payments.

Semiannual Period-End			Unamortized Premium			Carrying Value
(0)	12/31/2016		$	7,991		$	101,991
(1)	6/30/2017			7,192			101,192
(2)	12/31/2017			6,393			100,393

Use the above straight-line bond amortization table and prepare journal entries for the following.

1. (a) The issuance of bonds on December 31, 2016.
2. (b) The first interest payment on June 30, 2017.
3. (c) The second interest payment on December 31, 2017.

• 1

  Record the issue of bonds with a par value of $94,000 cash on December 31, 2016.

• 2

  Record the first interest payment on June 30, 2017.

• 3

  Record the second interest payment on December 31, 2017.

Answer 1

Answer :

	Date	General Journal	Debit	Credut
(a)	December 31, 2016	Cash	101,991
		Premium on bonds payable	7,991
		Bonds payable		94,000
		(To record issuance of bonds)
(b)	June 30, 2017	Bonds interest expense	2,491
		Premium on bonds payable	799
		Cash		3,290
		(To record interest payment)
(c)	December 31, 2017	Bonds interest expense	2,491
		Premium on bonds payable	799
		Cash		3,290
		(To record interest payment)

Working :

Premium on bonds payable for June 30, 2017 = $7,991 - $7,192 = $799

Premium on bonds payable for December, 2017 = $7,192 - $6,393 = $799

Bonds interest expense for June 30, 2017 & December, 2017 = ($94,000 * 7 % * 6/12) - $799 = $2,491