Edmonton-Alston Corporation issued 5-year, 9.5% bonds with a total face value of $700,000 on...

Question:

Edmonton-Alston Corporation issued 5-year, 9.5% bonds with a total face value of $700,000 on December 31, 2013, for $726,000. The bonds pay interest on June 30 and December 31 of each year.

Required:

1. Prepare the entries to recognize the interest payments made on June 30, 2014, and December 31, 2014 and amortization of any bond premium or discount on both dates using the straight-line method.

Journal Entries to Recognize Interest Expense and Bond Premium Amortization

So, when a corporation issues or sell bonds with an annual coupon or stated interest rate which is greater than the then prevailing annual market interest rate for similar debt instruments, the bonds will see for a premium in excess of their par value. This premium will then be amortized as a reduction of the interest expense on these bonds over the life of the bonds using either the straight-line or the effective interest method.

Answer and Explanation:

Required:

1. Prepare the entries to recognize the interest payments made on June 30, 2014, and December 31, 2014 and amortization of any bond...

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Issuing Bonds at a Discount or a Premium

from Accounting 101: Financial Accounting

Chapter 10 / Lesson 10
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