Question

Nicholas Ram Corporation have a $2,400,000 "bond issue" dated March 1, 2016 due in 15 years with an annual interest rate of 10%. Interest is payable March 1 and September 1. On August 1, 2016, the bond was sold for $2,513,750 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.)

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Stephanie Ram Corporation have a $960,000 "bond issue" dated February 1, 2016 due in 10 years with an annual interest rate of 9%. Interest is payable February 1 and August 1. On April 1, 2016, the bond was sold for $883,300 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 April 1, 2016.
b)		Payment of the semi-annual interest and the amortization of the discount on August 1, 2016.
c)		Accrual of the interest and the amortization of the discount on December 31, 2016.
d)		Payment of the semi-annual interest and the amortization of the discount on February 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

a) The issuance of the bond on August 1, 2016
Date	Account Titles & Explanation	Debit	Credit
Aug. 1	Cash	$2,578,750
	Premium on Bonds payable		$78,750
	Bonds Payable		$2,400,000
	Bonds Interest payable		$100,000
Interest is accrued for 5 months
b) Payment of the semiannual interest and the amortization of the premium on Sept 1, 2016
Sept. 1	Interest expense	$20,000
	Premium on Bonds payable	$2,625
	Bonds Interest payable	$100,000
	Cash		$122,625
Semiannual Interest expense = $2400000 x 10% x 1/2 = $120000
Premium amortization = $78750 / 15 years x 1/2 = $2625 semiannually
c) Accrual of the interest and the amortization of the premium on December 31, 2016
Dec. 31	Interest expense	$80,000
	Premium on Bonds payable	$1,750
	Interest payable		$81,750
Interest expense for 4 months = $240000/12 x 4 months = $80000
Premium amortization for 4 months = $5250/12 x 4 months = $1750
d) Payment of semiannual interest and the amortization of premium on March 1, 2017
Mar. 1	Interest payable	$81,750
	Interest expense	$40,000
	Premium on Bonds payable	$875
	Cash		$122,625
Interest expense for 2 months = $20000 x 2 = $40000
Premium amortization for 2 months = $875
Bonds issued at discount
a) The issuance of the bond on April 1, 2016
Date	Account Titles & Explanation	Debit	Credit
April. 1	Cash	$688,800
	Discount on bonds payable	$82,600
	Bonds Payable		$760,000
	Bonds Interest payable		$11,400
Interest accrued for 2 months
b) Payment of the semiannual interest and the amortization of the discount on August 1, 2016
Aug. 1	Interest expense	$22,800
	Bonds Interest payable	$11,400
	Discount on bonds payable		$4,130
	Cash		$30,070
Semiannual Interest expense = $760000 x 9% x 1/2 = $34200
Discount amortization = $82600 / 10 years x 1/2 = $4130 semiannually
c) Accrual of the interest and the amortization of the discount on December 31, 2016
Dec. 31	Interest expense	$28,500
	Discount on bonds payable		$3,442
	Interest payable		$25,058
Interest expense for 5 months = $68400/12 x 5 months = $28500
Discount amortization for 5 months = $8260/12 x 5 months = $3442
d) Payment of semiannual interest and the amortization of discount on Feb 1, 2017
Feb. 1	Interest payable	$25,058
	Interest expense	$5,700
	Discount on bonds payable		688
	Cash		$30,070
Interest expense for 1 months = $5700
Discount amortization for 1 months = $688