Celine
Dion Company issued $600,000 of 10%, 20-year bonds on January 1, 2009, at 102.
Interest is payable semiannually on July 1 and January 1. Dion Company uses the
effective interest method of amortization for bond premium or discount. Assume
an effective yield of 9.75%.
Instructions
Prepare
the journal entries to record the following. (Round to the nearest dollar.)
(a)
The issuance of the bonds.
(b)
The payment of interest and related amortization on July 1, 2009.
(c)
The accrual of interest and the related amortization on December 31, 2009.
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(a)
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1/1/09
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Cash ($600,000 X 102%)....................................................
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612,000
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Bonds
Payable..........................................................
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600,000
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Premium
on Bonds Payable...................................
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12,000
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(b)
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7/1/09
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Bond Interest Expense........................................................
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29,835
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($612,000 X 9.75% X 1/2)
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Premium on Bonds Payable...............................................
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165
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Cash...........................................................................
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30,000
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($600,000 X 10% X 6/12)
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(c)
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12/31/09
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Bond Interest Expense...........................................
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29,827
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($611,835* X 9.75% X 1/2)
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Premium on Bonds Payable.................................
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173
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Interest
Payable...........................................
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30,000
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*Carrying
amount of bonds at July 1, 2009:
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Carrying amount of bonds at January 1,
2009
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$612,000
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Amortization of bond premium
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($30,000 – $29,835)
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(165)
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Carrying amount of bonds at July 1, 2009
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$611,835
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