Cucumber Electric sold $3,300,00, 8%, 10-year bonds on January 1, 2022. The bonds were dated January 1 and pay interest annually on January 1. Cucumber Electric uses the straight-line method to am
Cucumber Electric sold $3,300,00, 8%, 10-year bonds on January 1, 2022. The bonds were dated January 1 and pay interest annually on January 1. Cucumber Electric uses the straight-line method to amortize bond premium or discount. The bonds were sold at 104.
- Prepare the
journal entry to record the issuance of the bonds on January 1, 2022.
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Date |
Account Titles and Explanation |
Debit |
Credit |
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01/01/22 |
Cash |
3,432,000 |
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Bonds Payable |
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3,300,000 |
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Premium on Bonds Payable |
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132,000 |
A) Prepare a bond premium amortization schedule for the first 4 interest periods.
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Annual Interest Periods |
Interest to Be Paid |
Interest Expense to be recorded |
Premium Amortization |
Unamortized Premium |
Bond Carrying Value |
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Issue Date |
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1 |
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2 |
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3 |
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4 |
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B) Prepare the journal entries for interest and the amortization of the premium in 2022 and 2023.
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Date |
Account Titles and Explanation |
Debit |
Credit |
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C) Show the
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Current Liabilities: |
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Interest Payable |
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Non-Current Liabilities: |
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Bonds Payable |
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Add: premium on Bonds Payable |
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Under straight line method, the premium or discount is amortized with equal amounts.
The bonds are issued at premium when market rate is lower than the coupon rate of bonds.
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