Amaral Corporation issued $100,000 of 10-year, 10% bonds at 104 on January 1, 2000. Interest is payable on January 1 and July 1. Amaral Corporation uses the straight-line method of amortization. This assignment requires you to record transactions related to the issue of bonds and subsequent interest payments in the general journal.
Transactions for 2000
Jan. 1 Issued $100,000 of 10%, 10-year bonds at 104. Interest is paid on January 1 and July 1.
Jul. 1 Recorded the interest payment.
Dec. 31 Recorded the accrued interest on the bonds.
Transactions for 2001
Jan. 1 Recorded the interest payment.
Jul. 1 Recorded the interest payment.
Dec. 31 Recorded the accrued interest on the bonds.
Journal Entries for 2000
| DATE | ACCOUNT | DEBIT | CREDIT |
| 2000 | |||
| Jan. 1 | Cash
Bonds Payable Premium on Bonds Payable |
104,000 |
100,000 4,000 |
| Jul. 1 | Interest Expense
Premium on Bonds Payable Cash |
4,800
200 |
5,000 |
| Dec. 31 | Interest Expense
Premium on Bonds Payable Interest Payable |
4,800
200 |
5,000 |
Semi-annual interest payment = $100,000 x 0.1 x 0.5 = $5,000
The total premium of $4,000 is amortized over 10 years. Since interest is paid twice a year, the amount of premium amortized at the time of each interest payment = $4,000 /20 = $200
Journal Entries for 2001
| DATE | ACCOUNT | DEBIT | CREDIT |
| 2001 | |||
| Jan. 1 | Interest Payable
Cash |
5,000 |
5,000 |
| Jul. 1 | Interest Expense
Premium on Bonds Payable Cash |
4,800
200 |
5,000 |
| Dec. 31 | Interest Expense
Premium on Bonds Payable Interest Payable |
4,800
200 |
5,000 |
