Adcock Company issued $460,000, 9%, 20-year bonds on January 1, 2017, at 102. Interest is payable...

Question:

Adcock Company issued $460,000, 9%, 20-year bonds on January 1, 2017, at 102. Interest is payable annually on January 1. Adcock uses straight-line amortization for bond premium or discount.

1. Prepare the journal entry to record the issuance of the bonds.

Date Account Titles and Explanation Debit Credit
Jan. 1

2. Prepare the journal entry to record the accrual of interest and the premium amortization on December 31, 2017.

Date Account Titles and Explanation Debit Credit
Dec. 31

Bonds Payable

These are long-term debt items and issued by corporations and even by the government. It is usually a formal obligation to pay on its maturity date coupled by interest paid regularly (ie., monthly, quarterly or semi-annually).

Answer and Explanation:

Below are the journal entries related to the issuance of bonds at a premium and payment of interest.

1. Prepare the journal entry to record the issuance of the bonds.

Date Account Titles and Explanation Debit Credit
Jan. 1 Cash 469,200
Bonds Payable 460,000
Premium on Bonds Payable 9,200

2. Prepare the journal entry to record the accrual of interest and the premium amortization on December 31, 2017.

Date Account Titles and Explanation Debit Credit
Dec. 31 Interest Expense 40,940
Premium on Bonds Payable 460
Cash 41,400


Learn more about this topic:

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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

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