SUMAMPONG, HAZEL JANE – BSACC2 – BLK 1

Chapter 3 – Bonds Payable

Assignment
Bonds Payable
Bonds issued at a Premium
1. StillGoing Corporation issued 1,000, 4.2% bonds (face value of each bond is $1,000) at
105.4956 on December 31, 2019. The bonds are due on December 31, 2024, with an interest
payment due on December 31st of each year during the 5-year term. The market rate at the
time of the bond issuance was 3%. StillGoing uses the effective interest method for
amortization.

Prepare the journal entries related to this bond for each year (2019 – 2024).

ANSWER:
Cash received at issue ($1,000,000 x 1.054956) $1,054,956
Less: Face value of bonds (1,000 x $1,000) ` $1,000,000
Premium on bonds payable $54,956
Interest payment required each December 31 (based on stated rate):
$1,000,000 x 4.2% = $42,000

AMORTIZATION TABLE:
Interest Amount of Bond
Interest Premium
Date Expense Premium Carrying
Payment Balance
(3%) Amortization Value
12/31/2019 $54,956 $1,054,956
12/31/2020 $31,649 $42,000 $10,351 $44,605 $1,044,605
12/31/2021 $31,338 $42,000 $10,662 $33,943 $1,033,943
12/31/2022 $31,018 $42,000 $10,982 $22,961 $1,022,961
12/31/2023 $30,689 $42,000 $11,311 $11,650 $1,011,650
12/31/2024 $30,350 $42,000 $11,650 $0 $1,000,000
JOURNAL ENTRIES:
12/31/19 Cash $1,054,956
Premium on bonds payable $54,956
Bonds Payable 1,000,000

12/31/20 Interest expense $31,649

Premium on bonds payable 10,351
Cash $42,000

12/31/21 Interest expense $31,338

Premium on bonds payable 10,662
Cash $42,000

12/31/22 Interest expense $31,018

Premium on bonds payable 10,982
Cash $42,000

12/31/23 Interest expense $30,689

Premium on bonds payable 11,311
Cash $42,000

12/31/24 Interest expense $30,350

Premium on bonds payable 11,650
Cash $42,000

Bonds payable $1,000,000

Cash $1,000,000
2. On January 1, 2018, Mighty Company issued a bond with a face value of $600,000 and a
stated interest rate of 5%. The bond was issued at 97.291. The bond matures in three years
(December 31, 2020) and pays interest every June 30 and December 31, starting June 30,
2018. When the bond was issued, the annual market rate of interest was 6%. Mighty uses
the effective-interest amortization method.

Prepare the journal entries related to this bond for each year (2018 – 2020)

ANSWER:
Face value of bonds $600,000
Less: Cash received at issue ($600,000 x .97291) $583,746
Premium on bond $16,254
Interest payment required each June 30 and December 31 (based on stated annual rate):
$600,000 x 5%/2 = $15,000

AMORTIZATION TABLE:

Amount of Bond
Interest Expense Interest Discount
Date Discount Carrying
(3% semi-annual) Payment Balance
Amortization Value

1/1/2018 $16,254 $583,746

6/30/2018 $17,512 $15,000 $2,512 $13,742 $586,258
12/31/2018 $17,588 $15,000 $2,588 $11,154 $588,846
6/30/2019 $17,665 $15,000 $2,665 $8,489 $591,511
12/31/2019 $17,745 $15,000 $2,745 $5,744 $594,256
6/30/2020 $17,828 $15,000 $2,828 $2,916 $597,084
12/31/2020 $17,916* $15,000 $2,916 $0 $600,000
JOURNAL ENTRIES:
1/1/18 Cash $583,746
Discount on bonds payable 16,254
Bond payables $600,000

6/30/18 Interest expense $17,512

Cash $15,000
Discount on bonds payable 2,512

12/31/18 Interest expense $17,588

Cash $15,000
Discount on bonds payable 2,588

6/30/19 Interest expense $17,665

Cash $15,000
Discount on bonds payable 2,665

12/31/19 Interest expense $17,745

Cash $15,000
Discount on bonds payable 2,745

6/30/20 Interest expense $17,828

Cash $15,000
Discount on bonds payable 2,828

12/31/20 Interest expense $17,916

Cash $15,000
Discount on bonds payable 2,916

Bonds payable $600,000

Cash $600,000
3. On January 1, 2017, Houston Company issued a $250,000, 5% bond at 103.63. The bond
matures on December 31, 2020 and pays interest every December 31, beginning December
31, 2017. When the bond was issued, the annual market rate of interest was 4%. Houston
uses the effective-interest amortization method.

Prepare the journal entries related to this bond for each year (2017 – 2020)

ANSWER:
Cash received at issue ($250,000 x 1.0363) $259,075
Face value of bonds $250,000
Premium on bonds payable $9,075
Interest payment required each December 31 (based on stated rate):
$250,000 x 5% = $12,500

AMORTIZATION TABLE:
Interest Amount of Bond
Date Expense Interest Premium Premium Carrying
(4%) Payment Amortization Balance Value
1/1/2017 $9,075 $259,075
12/31/2017 $10,363 $12,500 $2,137 $6,938 $256,938
12/31/2018 $10,278 $12,500 $2,222 $4,716 $254,716
12/31/2019 $10,189 $12,500 $2,311 $2,405 $252,405
12/31/2020 $10,095 $12,500 $2,405 $0 $250,000
JOURNAL ENTRIES:
1/1/17 Cash $259,075
Premium on bonds payable $9,075
Bonds payable 250,000

12/31/17 Interest expense $10,363

Premium on bonds payable 2,137
Cash $12,500

12/31/18 Interest expense $10,278

Premium on bonds payable 2,222
Cash $12,500

12/31/19 Interest expense $10,189

Premium on bonds payable 2,311
Cash $12,500

12/31/20 Interest expense $10,095

Premium on bonds payable 2,405
Cash $12,500

Bonds payable $250,000

Cash $250,000