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    Bonds Payable

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    Please help with the following problem.

    Company issues $200,000 of 8%, 10-year bonds on January 1, 2006, at 103. Interest is payable semiannually on July 1 and January 1. The company uses the straight-line method of amortization
    a.) Journalize the entries for the bonds on (1) January 1, 2006, (2) July 1, 2006, and (3) December 31, 2006
    b) Show the balance sheet presentation of the bonds at December 31, 2006.
    (c) Assume on July 1 2006, after paying interest, Tipten calls bonds having a face value of $100,000. The call price is 101. Record the redemption of the bonds.

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    Solution Preview

    a. The bonds are issued for 200,000X1.03=206,000.
    The journal entry is
    Jan 1, 2006
    Cash Dr 206,000
    Premium in Bonds Payable Cr 6,000
    Bonds Payable Cr 200,000

    The interest amount for six months is 200,000X8%X6/12=8,000. The total periods in the bond are 10X2 (years to maturity X interest payment frequency in a ...

    Solution Summary

    The solution explains the balance sheet presentation of bonds payable and the entry for redemption of bonds