### Educational Text on Bond Amortization**Bond Issuance Details:**On June 1, 2020, Mitchell Inc. issued 100 bonds with a face value of $1,000 each, totaling $100,000, dated June 1, 2020, for $108,530. The bonds have a coupon rate of 8% and pay cash interest semiannually on June 30 and December 31. They were issued to yield 6%. The bonds mature on May 31, 2025. The company employs the effective interest method to amortize bond discounts or premiums.**Amortization Schedule:**| Date | Cash Interest | Effective Interest | Premium Amortization | Outstanding Balance ||------------|---------------|--------------------|----------------------|---------------------|| 06/01/20 | | | | 108,530 || 11/30/20 | $4,000 | $3,256 | ($744) | 107,786 || 05/31/21 | 4,000 | 3,234 | (766) | 107,020 |**Journal Entries:**1. **June 1, 2020 - Bond Issuance:** - The entry at the time of bond issuance is typically a debit to cash and a credit to bonds payable.2. **November 30, 2020 - Interest Payment:** - Record the interest expense and payment.3. **December 31, 2020 - Adjusting Entry:** - Record the necessary end-of-year adjustments.**Note:** Round figures to the nearest dollar when calculating and recording entries.**Example Table Format for Journal Entries:**| Date | Account Titles | Debit | Credit ||------|-----------------|--------|---------|| 1 | Cash | 10,000 | || | Sales Revenue | | 10,000 |### Diagram Explanation:The amortization schedule provides a detailed breakdown of interest payments and premium amortization over time, showing how the outstanding balance decreases as the bond approaches maturity. Each line entry corresponds to a specific date, indicating the required cash interest payment, the calculated effective interest, and the amortized premium. This example illustrates how to manage and record bond-related financial activities effectively, offering valuable insights

The face value of a bond is 100000 and it is issued at 108530. The premium on the issue of bond is (108530-100000) = 8530. The premium on the bond is amortized over the period of bond marturity. A. On issuance on bond at a premium the entry in the books of the bond issuer is Debit: Cash xxx Credit: Bond Payable xxx Credit: Premium on Bond xxx (To record the issuance of bond) B. The entry for recording the interest payments and amortization of premium Debit: Interest Expense xxx Debit: Premium on Bond xxx Credit: Cash xxx (To record interest expense and amortization) C. Adjusting entries at year-end Debit: Interest Expense xxx Debit: Premium on Bond xxx Credit: Interest Payable xxx Journal entry in the books of Mitchell Inc.

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On June 1. 2020. Mitchell Inc. issued 100, 8%, $1,000 bonds dated June 1, 2020 for $108,530. The bonds pay cash interest semiannually each June 30, and December 31, and were issued to yield 6%. The bonds mature May 31, 2025, and the compae uses the effective interest method to amortize bond discounts or premiums. The partial amortization schedule is as follows: Amortization schedule Cash Effective Premium Outstanding Interest Interest amortization Balance 06/01/20 $108,530 11/30/20 $4.000 $3.256 ($744) 107,786 2 05/31/21 4,000 3,234 (766) 107.020 Required: Prepare journal entries on the following dates. Round to the nearest dollar, 1. June 1. 2020, bond issuance. 2. November 30, 2020, interest payment. 3. December 31,2020, adjusting entry.

On June 1. 2020. Mitchell Inc. issued 100, 8%, $1,000 bonds dated June 1, 2020 for $108,530. The bonds pay cash interest semiannually each June 30, and December 31, and were issued to yield 6%. The bonds mature May 31, 2025, and the compae uses the effective interest method to amortize bond discounts or premiums. The partial amortization schedule is as follows: Amortization schedule Cash Effective Premium Outstanding Interest Interest amortization Balance 06/01/20 $108,530 11/30/20 $4.000 $3.256 ($744) 107,786 2 05/31/21 4,000 3,234 (766) 107.020 Required: Prepare journal entries on the following dates. Round to the nearest dollar, 1. June 1. 2020, bond issuance. 2. November 30, 2020, interest payment. 3. December 31,2020, adjusting entry.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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