Question

Fong Corporation sold $2,000,000, 7%, 5-year bonds on January 1, 2017. The bonds were dated January 1, 2017 and pay interest on January 1. The company uses straight-line amortization on bond premiums or discounts.

Required:
Prepare all necessary journal entries to record the issuance of the bonds and bond interest expense for 2017.

Answer 1

Jan 1

Dr Cash 2,040,000

Cr Bonds payable 2,000,000

Cr Premium on bonds payable 40,000

Dec 31

Dr Interest expense 100,000

Dr premium on bonds payable 40,000

Cr Interest payable 140,000

Step-by-step explanation:

Preparation of the journal entries to record the issuance of the bonds and bond interest expense for 2017.

Jan 1

Dr Cash 2,040,000

Cr Bonds payable2,000,000

Cr Premium on bonds payable40,000

Dec 31

Dr Interest expense100,000

Dr premium on bonds payable40,000

Cr Interest payable140,000

(7%*$2,000,000)