Chapter 15, Problem 15.6AP

(a)

To determine

Bond: Bond is a financial instrument which generates the fixed income to the investors within a specified period of time. The income generated on the bonds is known as interest amount.

Amortization of Bonds: Bonds issued at discount or premium then the discounted or premium value is amortized from the contractual interest over a period of time and comes under the income statement.

Straight-line method of amortization of bonds: Straight-line method of amortization of bonds refers to set off an equal amount of discounted or premium amounts from the income statement over interest period.

Journalizing: It is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the amounts are posted to the relevant ledger accounts.

Accounting rules for journal entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

To Prepare: The journal entry for the issuance of bond.

(b)

To determine

To Prepare: The schedule the bond premium amortization for first 4 periods.

(c)

To determine

To Prepare: The journal entry for the interest and amortization of the premium.

(d)

To determine

To Prepare: the balance sheet presentation of the bond liability.