Question

Sandhill Company issued $396,000 of 10%, 20-year bonds on January 1, 2020, at 102. Interest is payable semiannually on July 1 and January 1. Sandhill Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%. Prepare the journal entries to record the following. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a) The issuance of the bonds.
(b) The payment of interest and related amortization on July 1, 2020.
(c) The accrual of interest and the related amortization on December 31, 2020.

Answer 1

01-Jan-20

Dr Cash 403,920

Cr Premium on Bonds Payable $7,920

Cr Bonds Payable $396,000

01-Jul-20

Dr Interest Expense $19,602

Dr Premium on Bonds Payable $198

Cr Cash 19,800

31-Dec-20

Dr Interest Expense $19,602

Dr Premium on Bonds Payable $198

Cr Interest Payable $19,800

Step-by-step explanation:

A. Preparation of Journal entry for the issuance of the bonds

01-Jan-20

Dr Cash 403,920

($396,000 x 102/100)

Cr Premium on Bonds Payable $7,920

(403,920-396,000)

Cr Bonds Payable $396,000

(To record issuance of bond)

B. Preparation of the Journal entry for the payment of interest and related amortization on July 1, 2020.

01-Jul-20

Dr Interest Expense $19,602

(19,800- 198)

Dr Premium on Bonds Payable $198

($ 7,920 / 40 semi annual payments)

Cr Cash 19,800

($396,000 x 10% x 6/12)

(To record interest payment)

C. Preparation for he accrual of interest and the related amortization on December 31,

31-Dec-20

Dr Interest Expense $19,602

(19,800- 198)

Dr Premium on Bonds Payable $198

($ 7,900 / 40 semi annual payments)

Cr Interest Payable $19,800

($396,000 x 10% x 6/12)

(To record interest accrual)