By Admin on Feb 25, 2010 in Other - Business & Finance
Hello,
I need help. Please assist if you can
Straight line amortization of bond discount and bond premium problem.
Romero issues $3,400,000 of 10%, 10 year bonds dated January 1, 2007, that pays interest semiannually on June 30 and December 31. The bonds are issue at a price of $3, 010,000.
1. Prepare January 1, 2007, journal entry to record the bonds issuance
2. For each semiannual period, compute (a) the cash payment, (b)the straight line discount amortization and (c)the bond interest expense.
3. Prepare the first two years of an amortization table using the straight line method
4. Prepare the journal entries to record the first two interest payments
5. Assume that the bonds are issued at a price of $4,192,932. Repeats parts 1 through 5.
Romero issues $3,400,000 of 10%, 10 year bonds dated January 1, 2007, that pays interest semiannually on June 30 and December 31. The bonds are issued at a price of $3,010,000.
Qn 1
Dr Cash $3,010,000
Dr Bonds discount $390,000
Cr Bonds payable $3,400,000
Qn 2 & Qn 4
Dr Interest expense $189,500
Cr Bonds discount $19,500 ($390,000/20)
Cr Cash $170,000 ($3.4m x 5%)
Qn 3
Beginning bonds discount $390,000
less Yr 1 amortisation ($19,500)
Unamortised discount $370,500
less Yr 2 amortisation ($19,500)
Unamortised discount $351,000
Romero issues $3,400,000 of 10%, 10 year bonds dated January 1, 2007, that pays interest semiannually on June 30 and December 31. The bonds are issue at a price of $4,192,932
Qn 1
Dr Cash $4,192,932
Cr Bonds premium $792,932
Cr Bonds payable $3,400,000
Qn 2 & Qn 4
Dr Interest expense $130,353
Dr Bonds premium $39,647 ($792,932/20)
Cr Cash $170,000 ($3.4m x 5%)
Qn 3
Beginning bonds premium $792,932
less Yr 1 amortisation ($39,647)
Unamortised premium $753,285
less Yr 2 amortisation ($39,647)
Unamortised premium $713,638
Sandy | Feb 27, 2010 | Reply