Chapter 10, Problem 10.9AP

(a)

To determine

Bonds

Bonds are a kind of interest bearing notes payable, usually issued by companies, universities and governmental organizations. It is a debt instrument used for the purpose of raising fund of the corporations or governmental agencies. If selling price of the bond is equal to its face value, it is called as par on bond. If selling price of the bond is lesser than the face value, it is known as discount on bond. If selling price of the bond is greater than the face value, it is known as premium on bond.

Straight-line amortization bond

Straight line method of amortization is a process of amortizing premium on bond or discount on bond, which allocates the same amount of interest expense in each period of interest payment.

Effective interest rate of amortization bond

Effective interest rate method of amortization is a process of amortizing premium on bond or discount on bond, which allocates the different amount of interest expense in each period of interest payment, but a constant percentage rate.

To Prepare: The journal entry to record the issuance of bonds of “P” Electric on January 1, 2019.

(b)

To determine

To Prepare: The premium on bond amortization table schedule for the first three payments of bonds payable.

(c)

To determine

To Prepare: The journal entry to record the accrued interest expense and premium on amortize bond for “P” Electric on December 31, 2019.

(d)

To determine

To Prepare: The balance sheet presentation for issuance of bonds at December 31, 2019 using the selling price of $104.