Question

Celine Dion company issued $600,000 of 10%, 20- year bonds on January 1, 2017, at 102. Interest is payable semiannually on July 1 and January 1. Dion company uses the straight-line method of amortization for bond premium or discount.

Instructions:

Prepare the journal entries to record the following.

1. The issuance of the bonds.
2. The payment of interest and the related amortization on July 1, 2017.
3. The accrual of interest and the related amortization on December 31, 2017.

Short answer

The premium on bond payable is $12,000

Step-by-step solution

Meaning of Journal

The journal entry is a way of recording the business transaction in the books of account. The journal entry is based on a double-entry system; therefore, a transaction affects a minimum of two accounts.

Showing journal entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
Jan 1, 2017	Cash	612,000
	Bonds Payable		600,000
	Premium on Bonds Payable		12,000
	(To record issue of bonds)
July 1, 2017	Interest Expense	29,700
	Premium on Bonds Payable ($12,000/40)	300
	Cash		30,000
	(To record interest and premium amortization)
Dec 31, 2017	Interest Expense	29,700
	Premium on Bonds Payable ($12,000/40)	300
	Cash		30,00
	(To record interest and premium amortization)

Note:

Premium on bonds payable $12,000 is for 20 years, and on July 1, 2017, the premium on bonds is amortized for six months; that’s why it is divided by 40 (20 years*2).