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3 April, 18:14

Brief Exercise 259 Mintz Company issued $400,000, 10%, 10-year bonds on January 1, 2017, at 105. Interest is paid annually on December 31. Mintz uses the straight-line method of amortization and has a calendar year end. Prepare all journal entries made in 2017 related to the bond issue.

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  1. 3 April, 19:51
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    Dr cash $420,000

    Cr bonds payable $400,000

    Cr premium on bonds payable $20,000

    Dr interest expense ($40000-$2,000) $38,000

    Dr premium on bonds payable $2,000

    Cr cash $40,000

    Explanation:

    The bond price is the pv of all cash inflows promised by the bond which includes annual coupon and repayment of face value at redemption:

    bond price=face value * 105%

    bond price=$400,000*105%=$420000

    The cash proceeds from the issue would be debited to cash while bonds payable is credited with $400,000 and premium on bonds payable is credited with $20,000.

    amortization of premium=$20,000/10=$2,000

    interest payment=10%*$400,000=$40,000
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