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Journal Entries - Bond Issuance and Premium Amortization

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Celine Dion Company issued $600,000 of 10% 20-year bonds on January 1, 2008, 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.

Prepare the journal entries to record the following.
(a) The issuance of the bonds.
(b) The payment of interest and the related amortization on July 1, 2008.
(c) The accrual of interest and the related amortization on December 31, 2008

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Solution Preview

(a) The issuance of the bonds.

The bonds were issued for $600,000*(102/100), or $612,000. Thus, they were issued for a $12,000 premium.

1/1/08 Cash $612,0000
Bonds payable $600,000 (the par value)
Premium on bonds payable 12,000 (the 2 percent premium)
To record the issuance ...

Solution Summary

This solution illustrates how to record the issuance of bonds and the amortization of a bond premium. It also illustrates how to compute the amortization.

$2.19