Question

On December 31, 2019, PT ABC issued $600,000 of 8% contractual rate, 5-year bonds at 103, with interest paid annually on December 31. Assuming straight-line amortization. Instruction: a. Prepare amortization table for the first 2 years. (3%) b. Journalize the issuance of bonds payable. (2%) Journalize the interest payment for Year- 1 on December 31, 2020. (2%) d. Journalize the redemption of bonds payable at 101.5 on December 31, 2021 (after interest payment for Year-2). (2%) c.

Answer 1

Answer:
a) Amortization table for 2 Years
Caculation of Issue Price =             ($ 600000 /100)*103
	=	$       7,80,000
Less: Face Value	$       6,00,000
Premium		$      1,80,000
Amortization Per year under Straight Line method = $ 1,80,000/5
		=	$ 36,000
Year	Cash Interest	Amortization	Interest Expenses	Carrying value
0				$                 7,80,000
1	$                        48,000	$           36,000	$                    12,000	$                 7,44,000
2	$                        48,000	$           36,000	$                    12,000	$                 7,08,000
b) Entry for Issuance of Bonds Payable
	Account Tittle		Debit	Credit
	Cash A/c		$                7,80,000
	Premium on Bond A/c		$                 1,80,000
	8% Bonds Payable A/c		$                 6,00,000
c) Interest Payment on December 01,2018
	Account Tittle		Debit	Credit
	Interest Expenses A/c	$                    12,000
	Premium on Bond a/c	$                    36,000
	Cash A/c			$                     48,000
d) Journal entry for Redemption of Bonds before Maturity
	Account Tittle		Debit	Credit
	8% Bonds Payable A/c	$                6,00,000
	Premium on Bonds A/c	$                1,08,000
	Cash A/c			$                 6,09,000
	Gain on Retirement of Bonds		$                     99,000