Question

Problem 10-3B

Straight-line: Amortization of bond premium P1 P3

Refer to the bond details in Problem 10-2B, except assume that the bonds are issued at a price of \$4,192,932.

Required

Prepare the January 1, 2013, journal entry to record the bonds’ issuance.

For each semiannual period, compute (a) the cash payment, (b) the straight-line premium amortization, and (c) the bond interest expense.

Determine the total bond interest expense to be recognized over the bonds’ life.

Prepare the first two years of an amortization table like Exhibit 10.11 using the straight-line method.

Prepare the journal entries to record the first two interest payments.

Check

(3) \$2,607,068

(4) 6/30/2014 carrying value, 4,073,991

1. Journal Entry:

2. Cash Payment for Each semiannual period:

3,400,000 x 5% = \$170,000

Straight Line Discount amortization = 390,000 / 20 = \$19,500

Bond Interest Expenses = 170,000 + 19,500 = \$189,500

3. Total Bond Interest expenses = 189,500 x 20 = \$3,790,000

4. Amortization Table:

5. Journal entries for interest:

 Date Account Title Debit Credit Jan1 2013 Cash 3,010,000 Discount on issue of Bonds 390,000 10% Bonds Payable 3,400,000