How do you record the issuance of bonds?

Need help with amortization of bonds?

• on 1/1/05, ABC company issues $100,000 face value, 10% bonds to yield 8%. The bonds are dated 1/1/05, pay interest each 7/1 and 1/1, and mature on 1/1/15. Assume firms have 12/31 fiscal year end. 1. Compute the issue price of the bonds. For this i got $113,590.33. Can someone double check me? 2. Record the issuance of the bonds. I have Cash 113,590.33 Bonds Payable 100,000.00 Premium Bonds 13,590.33 Can anyone check to see if i did that right also? and this next one is the one im struggling with 3. Provide all entries through 1/1/06, assuming ABC uses straight line amortization Can someone help me with this one? Thanks.

• Answer:

  Part 1 I got $113,590.33 also, using a financial calculator. Part 2 Your entry is correct, but you might want to use an account title for the premium that more fully describes it, such as "Premium on Bonds Payable". Part 3 1/1/05 Debit Cash $113,590.33 Credit Bonds Payable $100,000.00 Credit Premium on Bonds Payable $13,590.33 7/1/05 Debit Interest Expense $4,320.48 [$5,000 - $679.52] Debit Premium on Bonds Payable $679.52 [$13,590.33 / 20 = $679.52 per period] Credit Cash $5,000 [$100,000 x 10% x 6/12] 12/31/05 Debit Interest Expense $4,320.48 Debit Premium on Bonds Payable $679.52 Credit Interest Payable $5,000 1/1/06 Debit Interest Payable $5,000 Credit Cash $5,000