Question

On June 30, 2012, Mackes Company issued $5,000,000 face value of 13%, 20-year bonds at $5,376,150, a yield of 12%. Mackes uses the effective interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.
Prepare the journal entries to record the following transactions.
a. The issuance of the bonds on June 30, 2012.
b. The payment of interest and the amortization of the premium on December 31, 2012.
c. The payment of interest and the amortization of the premium on June 30, 2013.
d. The payment of interest and the amortization of the premium on December 31, 2013.

Answer 1

Answer:

Explanation:

a. Dr Cash   5,376,150

Cr Premium on bonds payable  376,150

Cr Bonds payable 5,000,000

b. Dr Interest expense 322,569

Dr premium on bonds payable 2431

Cr Cash 325,000

c. Dr Interest expense 322,423

Dr Premium on bonds payable 2577

Cr Cash 325,000

d. Dr Interest expense 322,269

Dr premium on bonds payable 2731

Cr Cash 325,000