The Colson Company issued $362,000 of 9% bonds on January 1, 2014. The bonds are due January 1,...

Question:

The Colson Company issued $362,000 of 9% bonds on January 1, 2014. The bonds are due January 1, 2020, with interest payable each July 1 and January 1. The bonds were issued at 102.

Required:

Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight-line amortization semiannually.

No. Date Account Titles and Explanation Debit Credit
(a) January 1, 2014
 
 
(b) July 1, 2014
 
 
(c) December 31, 2014

Bonds Payable:

Bonds are long-term debt instruments used by companies to garner capital. These instruments may be issued at face value, at a premium, or at a discount. The bond's principal must be repaid upon maturity, and, typically, interest payments are made periodically over the bond's lifetime.

Answer and Explanation:

No. Date Account Titles Debit Credit Explanation
(a) January 1, 2014 Cash $369,240 Record inflow of cash from issuance ($362,000 x 1.02)
Bonds Payable $362,000 Record bonds payable at par
Premium on Bonds Payable $7,240 Record premium on bonds ($369,240 - $362,000)
(b) July 1, 2014 Interest Expense $15,687 Record interest expense for half year ($16,290 - $603)
Premium on Bonds Payable $603 Record amortization of premium ($7,240 / (6 years x 2 period per year))
Cash $16,290 Record outflow of cash made in payment of interest ($362,000 x 9% per year / 2 periods per year)
(c) December 31, 2014 Interest Expense $15,687 Record interest expense for half year ($16,290 - $603)
Premium on Bonds Payable $603 Record amortization of premium ($7,240 / (6 years x 2 period per year))
Interest Payable $16,290 Record outflow of cash to be made in payment of interest ($362,000 x 9% per year / 2 periods per year)

Learn more about this topic:

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