Question

Effective Interest Premium Amortization

Instructions

Chart of Accounts

General Journal

Analysis

Instructions

Polk Incorporated issued $213,000 of 9% bonds on July 1, 2016, for $220,918.63. The bonds were dated January 1, 2016, pay interest on each June 30 and December 31, are due December 31, 2020, and were issued to yield 8%. Polk uses the effective interest method of amortization.

Required:

Prepare the journal entries to record the issue of the bonds on July 1, 2016, and the interest payments on December 31, 2016, and June 30, 2017. In addition, prepare a bond interest expense and premium amortization schedule for the bonds through June 30, 2017.

Chart of Accounts

CHART OF ACCOUNTS
Polk Incorporated
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 255 Bonds Payable 256 Premium on Bonds Payable 257 Discount on Bonds Payable 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

General Journal

Prepare the journal entries to record the issue of the bonds on July 1, 2016, and the interest payments on December 31, 2016, and June 30, 2017. Additional Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9

Analysis

Prepare a bond interest expense and discount amortization schedule for the bonds through June 30, 2017. Additional Instructions

POLK INCORPORATED
Bond Interest Expense and Discount Amortization Schedule (Partial)
Effective Interest Method 9% Bonds Sold to Yield 8%
Date	Cash Credit	Interest Expense Debit	Unamortized Discount Credit	Book Value of Bonds
07/01/16
12/31/16
06/30/17

Answer 1

Record journal entry for issue of bonds
Date	General Journal	Debit	Credit
1-Jul-16	Cash	$220,918.63
	Bonds payable		$213,000.00
	Premium on bonds payable (220,918.63-213000)		$7,918.63
	(To record issue of bonds)
31-Dec-16	Interest expense	$8,836.75
	Premium on bonds payable	$748.25
	Cash		$9,585.00
	(To record interest expense)
30-Jun-17	Interest expense	$8,806.82
	Premium on bonds payable	$778.18
	Cash		$9,585.00
	(To record interest expense)
POLK INCORPORATED
Bond Interest Expense and Discount Amortization Schedule (Partial)
Effective Interest Method 9% Bonds Sold to Yield 8%
Date	Cash Credit	Interest Expense Debit	Unamortized Discount Credit	Book Value of Bonds
7/1/2016				$220,918.63
12/31/2016	$9,585.00	$8,836.75	$748.25	$220,170.38
6/30/2017	$9,585.00	$8,806.82	$778.18	$219,392.19