Question

Can I get help fixing the answers that are in red because they are incorrect?

Your answer is partially correct. Try again. Nicholas Ram Corporation have a $1,400,000 "bond issue" dated March 1, 2016 due in 15 years with an annual interest rate of 6%. Interest is payable March 1 and September 1. On August 1, 2016, the bond was sold for $1,505,000 plus accrued interest. Using the straight-line method, prepare the general journal entries for each of the following: a) The issuance of the bond on August 1, 2016. b) Payment of the semi-annual interest and the amortization of the premium on September 1, 2016. c) Accrual of the interest and the amortization of the premium on December 31, 2016. d) Payment of the semi-annual interest and the amortization of the premium on March 1, 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Do not use dollar signs ($) when entering amounts. To see comma-formatted numbers reflected in your final answers, you must enter your answers with commas. Round answers to 2 decimal places, e.g. 5,275.25.)

Answer 1

Solution Face value of Bonds Issue price of Bonds Premium on bond issue ($1,505,000 - $1,400,000) Coupon rate of interest Interest payment frequency Bonds maturity period/Bonds life Total no. of coupon payments till maturity (15 Years x 2) $1,400,000 $1,505,000 $105,000 6.00% Semi-annually 15 Years 30 Semi-Annual interest payment = Face value x Coupon rate of interest/2 = $1,400,000 x 6%/2 = $42,000 Computation of cash received on bond issue Issue price of Bonds Add: Accrued interest ($1,400,000 x 6% x 5/12) Total cash received on Bond issue $1,505,000 $35,000 $1,540,000 Computation of semiannual interest expense using straight-line method Premium on bond issue Amortization month (15 Years x 12month) - 5month Premium amortization per month Semi-annual premium amortization ($600 x 6) Sem-annual interest expense ($ 42,000 - $3,600) $105,000 175 $600 $3,600 $38,400 Debit $1,540,000 Date Account Titles and Explanation Aug 1, 2016 Cash Bonds Payable Premium on Bonds Payable Bond interest Payable (To record issuance of Bonds) $1,400,000 $ 105,000 $35,000 Sep.1, 2016 Bond interest Expense ($38,400 x 1/6) $6,400 Bond interest Payable $35,000 Premium on Bonds Payable $600 Cash $42,000 (To record payment of semi-annual interest and premium amortization) 161 Dec 31, 2016 Bond interest Expense ($38,400 x 4/6) $25,600 Premium on Bonds Payable ($3,600 x 4/6) $2,400 Bond interest Payable ($ 42,000 x 4/6) (To record accrual of interest and premium amortization) $28,000 Mar.1, 2017 Bond interest Expense ($38,400 x 2/6) $12,800 Bond interest Payable $28,000 Premium on Bonds Payable ($3,600 x 2/6) | $1,200 Cash $42,000 (To record payment of semi-annual interest and premium amortization)