GenericProdeciaBUYON : on 1/1/05, ABC company issues $100,000 face value, 10% bonds to yield 8%. The bonds are dated 1/1/05, pay interest each 7/1 and 1/1, and mature on 1/1/15. Assume firms have 12/31 fiscal year end.

1. Compute the issue price of the bonds. For this i got $113,590.33. Can someone double check me?

2. Record the issuance of the bonds. I have

Cash 113,590.33
Bonds Payable 100,000.00
Premium Bonds 13,590.33

Can anyone check to see if i did that right also?


and this next one is the one im struggling with



3. Provide all entries through 1/1/06, assuming ABC uses straight line amortization

Can someone help me with this one? Thanks.

nesbitt379 : Part 1

I got $113,590.33 also, using a financial calculator.


Part 2

Your entry is correct, but you might want to use an account title for the premium that more fully describes it, such as "Premium on Bonds Payable".


Part 3

1/1/05
Debit Cash $113,590.33
Credit Bonds Payable $100,000.00
Credit Premium on Bonds Payable $13,590.33

7/1/05
Debit Interest Expense $4,320.48 [$5,000 - $679.52]
Debit Premium on Bonds Payable $679.52 [$13,590.33 / 20 = $679.52 per period]
Credit Cash $5,000 [$100,000 x 10% x 6/12]

12/31/05
Debit Interest Expense $4,320.48
Debit Premium on Bonds Payable $679.52
Credit Interest Payable $5,000

1/1/06
Debit Interest Payable $5,000
Credit Cash $5,000

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