Question

Capital Company issued $600,000, 10%, 20-year bonds on January 1, 2014, at 103. Interest is payable...

Capital Company issued $600,000, 10%, 20-year bonds on January 1, 2014, at 103. Interest is payable semiannually on July 1 and January 1. Capital uses the straight-line method of amortization and has a calendar year end. Instructions Prepare all (3) journal entries made in 2014 related to the bond issue.

PLEASE show the journal entry for payment of interest

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Answer #1

par value of bonds = $600,000

Cash receipts of issue of bonds = 600,000 x 103%

= $618,000

Premium on bonds payable = Cash receipts of issue of bonds - par value of bonds

= 618,000-600,000

= $18,000

Semi annually interest payment = par value of bonds x Interest rate x 6/12

= 600,000 x 10% x 6/12

= $30,000

Semi annually amortization of bond premium = Premium on bonds payable/40

= 18,000/40

= $450

Date General Journal Debit Credit
Jan.1 ,2014 Cash $618,000
Premium on bonds payable $18,000
Bonds payable $600,000
( To record issue of bond)
July 1, 2014 Interest expense $30,000
Premium on bonds payable $450
Cash $30,450
( To record bond interest payment)
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