Questions: Exercise 10-8 (Algo) Straight-Line: Recording bond issuance and premium amortization LO P3 128 points Wookie Company issues 9%, five-year bonds, on January 1 of this year, with a par value of 104,000 and semiannual interest payments. - Semiannual Period-End - Unamortized Premium - Carrying Value - (0) January 1, issuance - 8,191 - 112,191 - (1) June 30, first payment - 7,372 - 111,372 - (2) December 31, second payment - 6,553 - 110,553 Use the above straight-line bond amortization table and prepare journal entries for the following. (a) The issuance of bonds on January 1. (b) The first interest payment on June 30. (c) The second interest payment on December 31. References View transaction list Journal entry worksheet Record the issuance of the bonds on January 1. Note: Enter debits before credits. - Date - General Journal - Debit - Credit - January 01 - - - - Record entry Clear entry View general journal

Solution Steps

To solve this problem, we need to prepare journal entries for the issuance of bonds and the first two interest payments using the given straight-line bond amortization table. The steps are as follows:

1. Issuance of Bonds on January 1: Record the cash received, the bond payable, and the premium on bonds payable.
2. First Interest Payment on June 30: Record the interest expense, the amortization of the premium, and the cash payment.
3. Second Interest Payment on December 31: Record the interest expense, the amortization of the premium, and the cash payment.

To record the issuance of bonds, we need to account for the cash received, the bond payable, and the premium on bonds payable.

• Cash: \( \$112,191 \)
• Bonds Payable: \( \$104,000 \)
• Premium on Bonds Payable: \( \$8,191 \)

The journal entry is: \[ \begin{array}{|c|c|c|c|} \hline \text{Date} & \text{Accounts} & \text{Debit} & \text{Credit} \\ \hline \text{January 01} & \text{Cash} & \$112,191 & \\ \hline & \text{Bonds Payable} & & \$104,000 \\ \hline & \text{Premium on Bonds Payable} & & \$8,191 \\ \hline \end{array} \]

To record the first interest payment, we need to account for the interest expense, the amortization of the premium, and the cash payment.

• Semiannual Interest Payment: \( \$104,000 \times 0.045 = \$4,680 \)
• Amortization per Period: \( \frac{\$8,191}{10} = \$819.1 \)
• Interest Expense: \( \$4,680 - \$819.1 = \$3,860.9 \)

The journal entry is: \[ \begin{array}{|c|c|c|c|} \hline \text{Date} & \text{Accounts} & \text{Debit} & \text{Credit} \\ \hline \text{June 30} & \text{Interest Expense} & \$3,860.9 & \\ \hline & \text{Premium on Bonds Payable} & \$819.1 & \\ \hline & \text{Cash} & & \$4,680 \\ \hline \end{array} \]

To record the second interest payment, we need to account for the interest expense, the amortization of the premium, and the cash payment.

• Interest Expense: \( \$4,680 - \$819.1 = \$3,860.9 \)

The journal entry is: \[ \begin{array}{|c|c|c|c|} \hline \text{Date} & \text{Accounts} & \text{Debit} & \text{Credit} \\ \hline \text{December 31} & \text{Interest Expense} & \$3,860.9 & \\ \hline & \text{Premium on Bonds Payable} & \$819.1 & \\ \hline & \text{Cash} & & \$4,680 \\ \hline \end{array} \]

Final Answer