
Prepare the journal entries to record the bond transactions for year 2016 and year 2018.

Explanation of Solution
Straight line amortization bond:
Prepare the
Date | Account titles and Explanation | Debit | Credit |
January 1, Year 2016 | Cash | $285,600 | |
Premium on bonds payable | $5,600 | ||
Bonds payable | $280,000 | ||
(To record the issuance of bonds payable with premium) |
Table (1)
Working notes:
Calculate premium on bonds payable.
Calculate premium on bonds payable.
- Cash is a current asset, and it is increased. Therefore, debit cash account for $285,600.
- Premium on bonds payable is an adjunct liability, and it is increased. Therefore, credit premium on bonds payable account for $5,600.
- Bonds payable is a long term liability, and it is increased. Therefore, credit bonds payable account for $280,000.
Prepare the journal entry to record the payment of interest expense on June 30, Year 2016 as follows:
Date | Account titles and Explanation | Debit | Credit |
June 30, Year 2016 | Interest expense | $7,840 | |
Premium on bonds payable | $560 | ||
Cash | $8,400 | ||
(To record the payment for interest expense with premium) |
Table (2)
Working notes:
Calculate premium on bonds payable (premium amortization).
Calculate cash paid.
Calculate interest expenses.
- Interest expense is a component of
stockholders’ equity , and it is decreased. Therefore, debit interest expense account for $7,840. - Premium on bonds payable is an adjunct liability, and it is decreased. Therefore, debit premium on bonds payable account for $560.
- Cash is a current asset, and it is decreased. Therefore, credit cash account for $8,400.
Prepare the journal entry to record the payment of interest expense on December 31, Year 2016 as follows:
Date | Account titles and Explanation | Debit | Credit |
December 31, Year 2016 | Interest expense | $7,840 | |
Premium on bonds payable | $560 | ||
Cash | $8,400 | ||
(To record the payment for interest expense with premium) |
Table (3)
Working notes:
Calculate premium on bonds payable (premium amortization).
Calculate cash paid.
Calculate interest expenses.
- Interest expense is a component of stockholders’ equity, and it is decreased. Therefore, debit interest expense account for $7,840.
- Premium on bonds payable is an adjunct liability, and it is decreased. Therefore, debit premium on bonds payable account for $560.
- Cash is a current asset, and it is decreased. Therefore, credit cash account for $8,400.
Prepare the journal entry to record the payment of interest expense on June 30, Year 2017 as follows:
Date | Account titles and Explanation | Debit | Credit |
June 30, Year 2017 | Interest expense | $7,840 | |
Premium on bonds payable | $560 | ||
Cash | $8,400 | ||
(To record the payment for interest expense with premium) |
Table (4)
Working notes:
Calculate premium on bonds payable (premium amortization).
Calculate cash paid.
Calculate interest expenses.
- Interest expense is a component of stockholders’ equity, and it is decreased. Therefore, debit interest expense account for $7,840.
- Premium on bonds payable is an adjunct liability, and it is decreased. Therefore, debit premium on bonds payable account for $560.
- Cash is a current asset, and it is decreased. Therefore, credit cash account for $8,400.
Prepare the journal entry to record the payment of interest expense on December 31, Year 2017 as follows:
Date | Account titles and Explanation | Debit | Credit |
December 31, Year 2017 | Interest expense | $7,840 | |
Premium on bonds payable | $560 | ||
Cash | $8,400 | ||
(To record the payment for interest expense with premium) |
Table (5)
Working notes:
Calculate premium on bonds payable (premium amortization).
Calculate cash paid.
Calculate interest expenses.
- Interest expense is a component of stockholders’ equity, and it is decreased. Therefore, debit interest expense account for $7,840.
- Premium on bonds payable is an adjunct liability, and it is decreased. Therefore, debit premium on bonds payable account for $560.
- Cash is a current asset, and it is decreased. Therefore, credit cash account for $8,400.
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