Asked by Karen Macauley on Jul 07, 2024
Verified
On February 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds for $1,225,000. Interest is payable semiannually on February 1 and August 1. Present the entries to record the following transactions.(a)Issuance of the bonds.(b)First semiannual interest payment (record as separate entry from premium amortization).(c)Amortization of bond discount for the year, using the straight-line method of amortization. (Round to the nearest dollar when necessary.)
Premium Amortization
The process of gradually reducing the premium paid on bonds purchased above their face value over the life of the bonds.
Straight-Line Method
The straight-line method is a technique for calculating depreciation of an asset by evenly spreading its cost over its expected useful life.
Semiannual Interest
Semiannual interest refers to the interest payment made two times a year on a loan or bond.
- Comprehend the methodology and financial accounting related to the issuance of bonds, encompassing scenarios of both par value and those issued at a discount or premium.
- Understand the principles of bond interest payments and accurately record these transactions in the journal.
- Understand the process of amortizing bond discount and premium through straight-line and effective interest rate techniques.
Verified Answer
DK
Danka KnezevicJul 10, 2024
Final Answer :
(a)Cash
1,225,000
Discount on Bonds Payable
75,000
Bonds Payable
1,300,000
(b)Interest Expense
58,500
Cash
58,500
(c)Interest Expense
3,438
Discount on Bonds Payable
3,438
1,225,000
Discount on Bonds Payable
75,000
Bonds Payable
1,300,000
(b)Interest Expense
58,500
Cash
58,500
(c)Interest Expense
3,438
Discount on Bonds Payable
3,438
Learning Objectives
- Comprehend the methodology and financial accounting related to the issuance of bonds, encompassing scenarios of both par value and those issued at a discount or premium.
- Understand the principles of bond interest payments and accurately record these transactions in the journal.
- Understand the process of amortizing bond discount and premium through straight-line and effective interest rate techniques.