Jackson Corporation issued $250,000 of 10-year, 8% bonds at 103 on January 1, 2000. Interest is payable on January 1 and July 1. Jackson Corporation uses the straight-line method of amortization. This assignment requires you to record the purchase of the bonds and the interest payments for 2000 and 2001.
Transactions for 2000
Jan. 1 Issued $250,000 of 10-year, 8% bonds at 103. Interest is paid on January 1 and July 1.
Jul. 31 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
| Transaction number | DATE | ACCOUNT | DEBIT | CREDIT |
| 2000 | ||||
| 1 | Jan. 1 | Cash
Bonds Payable Premium on Bonds Payable |
257,500 |
250,000 7,500 |
| 2 | Jul. 1 | Interest Expense
Premium on Bonds Payable Cash |
9,625
375 |
10,000 |
| 3 | Dec. 31 | Interest Expense
Premium on Bonds Payable Interest Payable |
9,625
375 |
10,000 |
Semi-annual interest payment = $250,000 x 0.08 x 0.5 = $10,000
The total premium of $7,500 is amortized over 10 years. Since interest is paid twice a year, the amount of premium amortized at the time of each interest payment = $7,500/20= $375
Journal Entries for 2001
| Transaction number | DATE | ACCOUNT | DEBIT | CREDIT |
| 2001 | ||||
| 1 | Jan. 1 | Interest Payable
Cash |
10,000 |
10,000 |
| 2 | Jul. 1 | Interest Expense
Premium on Bonds Payable Cash |
9,625
375 |
10,000 |
| 3 | Dec. 31 | Interest Expense
Premium on Bonds Payable Interest Payable |
9,625
375 |
10,000 |
