Chapter+10+Sample+Question

Primer on Bonds Payable:

http://www.cliffsnotes.com/WileyCDA/CliffsReviewTopic/Bonds-Payable.topicArticleId-21248,articleId-21182.html

CP 10-7 Chapter 10 Study Question
Southwest Corp issued $600,000 bonds, Stated interest 9%, annual bonds payable December 31st each year for 5 years. Bonds issued on January 1, 2009.  A. Assume the bonds were issued at 104 and the market rate was 8%.  a. Required:  1. Show the journal entry required on January 1, 2009  2. Show the journal entry required on December 31, 2009. Southwest uses the straight line method to account for bond interest amortization. Hint: Remember to fully Account/adjust bond interest expense.

Initial Entry: __ Account Debit Credit __ DR Cash $ 624,000 CR Premium on Bonds Payable $ 24,000 CR Bonds payable $600,000

December 31, 2009 : DR Interest Expense $ 49,200 DR Premium on Bonds payable $ 4,800 CR Cash $ 54,000

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If issued at 97 the account to be used is Discount on Bond Payable.

DR Cash $ 582,000 DR Discount on Bonds Premium $ 18,000 CR Bonds Payable $ 600,000

December 31, 2009 : DR Interest Expense $ 57,600 CR Discount on Bonds Premium $ 3,600 CR Cash $ 54,000

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