Question

.On May 1, 2012, Noah Unlimited issues 9%, 20-year bonds payable with a maturity value of $200,000. The bonds sell at 103 and pay interest on May 1 and November 1. Noah Unlimited amortizes bond premium by the straight-line method.

Answer 1

1. May 1, 2012

Dr Cash $206,000

Cr Bonds payable $200,000

Cr Premium on bonds payable $6,000

2. November 1, 2012

Dr Interest expense $8,850

Dr Premium on bonds payable $150

Cr Cash $9,000

Step-by-step explanation:

1. Preparation of the journal entry to record the issuance of the bonds on May 1, 2012

May 1, 2012

Dr Cash $206,000

(103%*$200,000)

Cr Bonds payable $200,000

Cr Premium on bonds payable $6,000

($206,00-$200,000)

(To record issuance of bonds)

2. Preparation of the Journal entry to record the semiannual interest payment and amortization of bond premium on November 1, 2012.

November 1, 2012

Dr Interest expense $8,850

($9,000-$150)

Dr Premium on bonds payable $150

($6,000*1/40)

Cr Cash $9,000

(9%*$200,000*6/12)

(To record semiannual interest payment and amortization of bond premium)