Describe the journal entries required to record the issuance

Describe the journal entries required to record the issuance of bonds at a premium and the payment of bond interest, including any applicable amortization.

Solution

Answer:

The Entry for issuance of bond will come as under

Description

Debit $

Credit $

Cash

xxxxx

Premium on bonds payable

xxxxx

Bonds payable

xxxxx

At the time of interest, company will pass the entry of interest of interest along with amortisation as under

Description

Debit $

Credit $

Interest expanses

xxxxxx

Premium on bonds payable

xxxxx

Cash

xxxxx

Let us take one example,

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

Now entry for recording the issuance of bonds at a premium and the payment of bond interest, including any applicable amortization as under

Particular

   Debit  

   Credit  

Cash

612,000

            Premium on Bonds Payable

      12,000

               Bond payable

       600,000

Interest Expense

   29,700

Premium on Bonds Payable

(12000/40)

      300

               Cash

         30,000

Interest Expense

29,700

Premium on Bonds Payable

     300

               Interest Payable

        30,000