Woodwick Company issues 9 fiveyear bonds on December 31 2016

Woodwick Company issues 9%, five-year bonds, on December 31, 2016, with a par value of $104,000 and semiannual interest payments Semiannual Period-End (e) 12/31/2016 (1) 6/30/2017 (2) 12/31/2017 Unamortized Premium $8,191 7,372 6,553 Carrying Value $112,191 111,372 110,553 Use the above straight-line bond amortization table and prepare journal entries for the following. (a) The issuance of bonds on December 31, 2016 (b) The first interest payment on June 30, 2017. (c) The second interest payment on December 31, 2017

Solution

Date

General Journal

Debit

Credit

December 31,2016

Cash A/c

112,191

To Premium on Bonds Payable

8,191

To Bond Payable

104,000

[To record the issue of bond]

June 30, 2017

Bond Interest Expenses A/c

3,861

Premium on Bonds Payable A/c

819

To Cash A/c

4,680

[To record the first interest payment on June 30,2017]

December 31,2017

Bond Interest Expenses A/c

3,861

Premium on Bonds Payable A/c

819

To Cash A/c

4,680

[To record the second interest payment on December 31,2017]

Par Value of the Bond = $104,000

Bond Issue Price = $ 112,191

Premium on Bonds Payable = $112,191 - 104,000 = 8,191

Total Cash Semi annual Payments = $104,000 x 9% x ½ = $4,680

Amortization of Premium on Bond payable over 10 semiannual periods

= $8,191 / 10

= $891

Therefore, Bond Interest Expenses = $4,680 – 891 = $3,861

Date	General Journal	Debit	Credit
December 31,2016	Cash A/c	112,191
	To Premium on Bonds Payable		8,191
	To Bond Payable		104,000
	[To record the issue of bond]
June 30, 2017	Bond Interest Expenses A/c	3,861
	Premium on Bonds Payable A/c	819
	To Cash A/c		4,680
	[To record the first interest payment on June 30,2017]
December 31,2017	Bond Interest Expenses A/c	3,861
	Premium on Bonds Payable A/c	819
	To Cash A/c		4,680
	[To record the second interest payment on December 31,2017]