Question

Exercise 14-09 (Part Level Submission) On June 30, 2020, Monty Company issued $4,360,000 face value of 13%, 20-year bonds at $4,688,000, a yield of 12%. Monty uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31. Collapse question part (a) Prepare the journal entries to record the following transactions. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) (1) The issuance of the bonds on June 30, 2020. (2) The payment of interest and the amortization of the premium on December 31, 2020. (3) The payment of interest and the amortization of the premium on June 30, 2021. (4) The payment of interest and the amortization of the premium on December 31, 2021. No. Date Account Titles and Explanation Debit Credit (1) June 30, 2020 (2) December 31, 2020 (3) June 30, 2021 (4) December 31, 2021 Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer:

1. June 30,2020

Dr Cash $4,688,000

Cr Bonds payable $4,360,000

Cr Premium on Bonds payable 328,000

2. December 31,2020

Dr Interest expense 281,280

Dr Premium on Bonds payable 2,120

Cr Cash 283,400

3. June 30,2021

Dr Interest expense 281,153

Dr Premium on Bonds payable 2,247

Cr Cash 283,400

4. December 31,2021

Dr Interest expense 281,018

Dr Premium on Bonds payable 2,382

Cr Cash 283,400

Explanation:

Preparation of the Journal entries for Monty Company.

1. June 30,2020

Dr Cash $4,688,000

Cr Bonds payable $4,360,000

Cr Premium on Bonds payable 328,000

($4,688,000-$4,360,000)

2. December 31,2020

Dr Interest expense 281,280

(4,688,000*12%/2)

Dr Premium on Bonds payable 2,120

(283,400-281,280)

Cr Cash 283,400

(4,360,000*13%/2)

3. June 30,2021

Dr Interest expense 281,153

(4,688,000-2,120)*12%/2

Dr Premium on Bonds payable 2,247

(283,400-281,153)

Cr Cash 283,400

(4,360,000*13%/2)

4. December 31,2021

Dr Interest expense 281,018

(4,688,000-2,120-2,247)*12%/2

Dr Premium on Bonds payable 2,382

(283,400-281,018)

Cr Cash 283,400

(4,360,000×13%/2)