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On June 30, 2017, Novak Company issued $4,400,000 face value of 13%, 20-year bonds at $4,731,010,...

On June 30, 2017, Novak Company issued $4,400,000 face value of 13%, 20-year bonds at $4,731,010, a yield of 12%. Novak uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.

Prepare the journal entries to record the following transactions:

(1) The issuance of the bonds on June 30, 2017.
(2) The payment of interest and the amortization of the premium on December 31, 2017.
(3) The payment of interest and the amortization of the premium on June 30, 2018.
(4) The payment of interest and the amortization of the premium on December 31, 2018.
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Answer #1

Journal Entries :-

Date Particulars Debit($) Credit($)
Jun. 30, 2017 Cash A/c Dr. 4731010
To Bonds Payable A/c 4400000
To Premiumon Bonds Payable A/c 331010
Dec. 31, 2017 Bond Interest Expense A/c Dr.($4731010*6%) 283861
Premium on Bonds Payable A/c Dr. 2139
To Cash A/c ($4400000*6.5%) 286000
Jun. 30, 2018 Bond Interest Expense A/c Dr.(($4731010-$2139)*6%) 283732
Premium on Bonds Payable A/c Dr. 2268
To Cash A/c 286000
Dec. 31, 2018 Bond Interest Expense A/c Dr.(($4731010-$2139-$2268)*6%) 283596
Premium on Bonds Payable A/c Dr. 2404
To Cash A/c 286000
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