On January 1, the first day of the fiscal year, a company issues an $8,600,000, 11%, five-year bond that pays semiannual interest of $473,000 ($8,600,000 x 11% x ½), receiving cash of $8,932,035. Required: Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.
On January 1, the first day of the fiscal year, a company issues an $8,600,000, 11%, five-year bond that pays semiannual interest of $473,000 ($8,600,000 x 11% x ½), receiving cash of $8,932,035. Required: Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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2) On January 1, the first day of the fiscal year, a company issues an $8,600,000, 11%, five-year bond that pays semiannual interest of $473,000 ($8,600,000 x 11% x ½), receiving cash of $8,932,035.
Required:
| Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered. |
Transcribed Image Text:s (1)
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Premium Amortization
14.02A.BLANKSHEET
Instructions
Chart of Accounts
Journal
14.02B
Instructions
X
14.03A.BLANKSHEET
Journal
14.03B
Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. Refer to the chart of accounts for the exact wd
the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will auton
14.04A.BLANKSHEET
indent a credit entry when a credit amount.
entered.
14.04B
PA
14.05A.BLANKSHEET
JOURNAL
ACCOUNTING EQUATIO
4.05B
DATE
DESCRIPTION
POST. REF.
DEBIT
CREDIT
ASSETS
LIABILITIES
E
Jun. 30 Interest Expense
1
14.06A.BLANKSHEET
2
Premium on Bonds Payable
14.06B
3
Cash
473,000.00
14.05
14.06
.14.07
Transcribed Image Text:Bonds (1)
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1. PE.14.02A.BLANKSHEET
Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method
2. PE.14.02B
Favreau Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Favreau Corporation issued $35,000,000 of five-year,
7% bonds at a market (effective) interest rate of 6%, receiving cash of $36,492,785. Interest is payable semiannually on April 1 and October 1.
3. PE.14.03A.BLANKSHEET
a. Journalize the entry to record the issuance of bonds on April 1. If an amount box does not require an entry, leave it blank.
4. PE.14.03B
Cash
36,492,785 V
5. PE.14.04A.BLANKSHEET
Premium on Bonds Payable
1,492,785 V
Bonds Payable
35,000,000
6. PE.14.04B
Feedback
7. PE.14.05A.BLANKSHEET
V Check My Work
8. PE.14.05B
Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of
amortization provides equal amounts of amortization over the life of the bond.
9. PE.14.06A.BLANKSHEET
10. PE.14.06B
b. Journalize the entry to record the first interest payment on October 1 and amortization of bond premium for six months, using the straight-line
method. The bond premium amortization is combined with the semiannual interest payment. Round to the nearest dollar. If an amount box does
11. EX.14.05
not require an entry, leave it blank.
12. EX.14.06
Interest Expense
215,300 X
Premium on Bonds Payable
18,700 x
13. EX.14.07
234,000 x
Cash
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