Question

Duval Co. issues four-year bonds with a $113,000 par value on January 1, 2017, at a price of $108,855. The annual contract rate is 6%, and interest is paid semiannually on June 30 and December 31 Prepare the journal entry for maturity of the bonds on December 31, 2020 (assume semiannual interest is already recorded)

Answer 1

To prepare the journal entry for the maturity of the bonds on December 31, 2020, the Bonds Payable account is debited for the par value of $113,000, the Premium on Bonds Payable account is credited for the amortized premium of $4,145, and the Cash account is credited for the maturity value of $108,855.

Step-by-step explanation:

To prepare the journal entry for the maturity of the bonds on December 31, 2020, we need to consider the face value and the premium or discount on the bonds.

First, let's calculate the premium or discount. The premium or discount is the difference between the par value and the price of the bonds. In this case, the premium or discount is $113,000 - $108,855 = $4,145.

The premium or discount needs to be amortized over the remaining life of the bonds. Since the bonds have a four-year term and it is now the end of the fourth year, there is no remaining life and the premium or discount is written off on the maturity date.

The journal entry to record the maturity of the bonds on December 31, 2020, would be:

• Debit Bonds Payable $113,000
• Credit Premium on Bonds Payable $4,145
• Credit Cash $108,855