
(a)
Introduction:
As per the effective interest rate method, a constant interest rate on book or carrying value is assigned to each period.
To record:

Answer to Problem 80E
Journal Entry for issuance of Bonds at premium
Date | Particulars | Debit ($) | Credit ($) |
1st January 2020 | Cash Dr. Bonds Payable Premium on Bonds Payable |
155,989 | 150,000 5,989 |
Explanation of Solution
Given:
$150,000, stated rate 9% and effective rate 8% were issued at $155,989 for 5 years.
The face
Journal Entry for issuance of Bonds at premium
Date | Particulars | Debit ($) | Credit ($) |
1st January 2020 | Cash Dr. Bonds Payable Premium on Bonds Payable |
155,989 | 150,000 5,989 |
(b)
Introduction:
A Bond is long term liability wherein the issuer is entitled to pay the face value of the Bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.
To calculate:
The interest payments on bonds.

Answer to Problem 80E
The interest payments on the bonds is $13,500.
Explanation of Solution
Given:
150,000, stated rate 9% and effective rate 8% were issued at $155,989 for 5 years.
The interest payment is calculated on the yield rate (i.e. effective rate of interest) whereas the interest expense is calculated on the stated rate of interest. Whereas, Interest Expense of bonds that were issued at premium is calculated by deducting the premium on bonds payable (for the period) from Interest Payment.
So, Interest payment can be calculated as:
Interest Payment =
Interest Payment =
Interest Payment = $13,500.
(c)
Introduction:
A Bond is long term liability wherein the issuer is entitled to pay the face value of the Bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.
To prepare:
The amortization table.

Answer to Problem 80E
Amortization table
Annual Period | Cash Payment (Credit) | Interest Expense (Debit) | Premium on Bonds Payable (Debit) | Premium on Bonds Payable Balance | Carrying Value |
At issue | 5,989 | 155,989 | |||
12/31/2019 | 13,500 | 12,479 | 1,021 | 4,968 | 154,968 |
12/31/2020 | 13,500 | 12,398 | 1,102 | 3,866 | 153,866 |
12/31/2021 | 13,500 | 12,309 | 1,191 | 2,675 | 152,675 |
12/31/2022 | 13,500 | 12,214 | 1,286 | 1,389 | 151,389 |
12/31/2023 | 13,500 | 12,111 | 1,389 | 0 | 150,000 |
Explanation of Solution
Given:
150,000, stated rate 9% and effective rate 8% were issued at $155,989 for 5 years.
Amortization table
Annual Period | Cash Payment (Credit) | Interest Expense (Debit) | Premium on Bonds Payable (Debit) | Premium on Bonds Payable Balance | Carrying Value |
At issue | 5,989 | 155,989 | |||
12/31/2019 | 13,500 | 12,479 | 1,021 | 4,968 | 154,968 |
12/31/2020 | 13,500 | 12,398 | 1,102 | 3,866 | 153,866 |
12/31/2021 | 13,500 | 12,309 | 1,191 | 2,675 | 152,675 |
12/31/2022 | 13,500 | 12,214 | 1,286 | 1,389 | 151,389 |
12/31/2023 | 13,500 | 12,111 | 1,389 | 0 | 150,000 |
Cash Payment =
Cash Payment =
Cash Payment = $13,500
Interest Expense =
Interest Expense =
Premium on Bonds Payable = Cash payment − Interest Expense
Premium on Bonds Payable Balance = Previous Year balance − Current year premium
Carrying Value = Previous Carrying Value − Change in Premium Balance.
(d)
Introduction:
A Bond is long term liability wherein the issuer is entitled to pay the face value of the Bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.
To record:
Journal entry to show interest expense and payment of interest for year 2019.

Answer to Problem 80E
Journal Entry (combined) to show interest expense and payment of interest for year 2019.
Date | Particulars | Debit ($) | Credit ($) |
31st December 2019 | Interest Expense Dr. Premium on Bonds Payable Cash |
12,479 1,021 |
13,500 |
Explanation of Solution
Given:
$150,000, stated rate 9% and effective rate 8% were issued at $155,989 for 5 years.
Interest Expense of bonds that were issued at premium is calculated by deducting the premium on bonds payable (for the period) from Interest Payment.
Journal Entry to show interest expense for year ending on 31st December 2019
Date | Particulars | Debit ($) | Credit ($) |
31st December 2019 | Interest Expense Dr. Premium on Bonds Payable Interest Payable |
12,479 1,021 |
13,500 |
Journal Entry to interest payment for year ending on 31st December 2019
Date | Particulars | Debit ($) | Credit ($) |
31st December 2019 | Interest PayableDr. Cash |
13,500 | 13,500 |
(e)
Introduction:
A Bond is long term liability wherein the issuer is entitled to pay the face value of the Bond at the time of maturity and make interest payments periodically. It is a breakdown of large debt to borrow as it may be too large for an individual lender.
To calculate:
Interest Expense (annual) for year 2019 and 2020.

Answer to Problem 80E
The annual interest expense for year 2019 and 2020 is $12,479 and $12,398, respectively.
Explanation of Solution
Given:
$150,000, stated rate 9% and effective rate 8% were issued at $155,989 for 5 years.
Interest Expense of bonds that were issued at premium is calculated by deducting the premium on bonds payable (for the period) from Interest Payment.
Interest Expense (12/31/2019) =
Premium on Bonds Payable = $13,500 - $12,479 = $1,021
Carrying Value = $155,989 - $1,021 = $154,968
Interest Expense (12/31/2020) =
Premium on Bonds Payable = $13,500 - $12,398 = $1,102
Carrying Value = $154,968 - $1,102 = $153,866.
Want to see more full solutions like this?
Chapter 9 Solutions
Cornerstones of Financial Accounting
- Juno Manufacturing produces lamps that require 2.8 standard hours per unit at an hourly rate of $14.00 per hour. If 5,800 units required 15,900 hours at an hourly rate of $13.60 per hour, determine the following: a) Direct labor rate variance b) Direct labor time variance c) Total direct labor cost variancearrow_forwardprovide correct answer of this General accounting questionarrow_forward4 POINTSarrow_forward
- In the month of September, a department had 9,500 units in beginning work in process that were 60% complete. During September, 28,500 units were transferred into production from another department. At the end of September, there were 5,500 units in ending work in process that were 50% complete. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. A. The equivalent units of production for materials in September were __. B. The equivalent units of production for conversion costs for September were __.arrow_forwardAnswer ?arrow_forwardIn the month of September, a department had 9,500 units in beginning work in process that were 60% complete. During September, 28,500 units were transferred into production from another department. At the end of September, there were 5,500 units in ending work in process that were 50% complete. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. A. The equivalent units of production for materials in September were . B. The equivalent units of production for conversion costs for September were . Need answerarrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT




