How to record bonds payable and premium on bonds

Response to the following problem:

On January 1, 2017, the date of bond authorization, Sydney Corp. issued 3-year, 12-per cent bonds with a face value of $200,000 at 112. Semi-annual interest is payable on June 30 and December 31.

Required: 1. Prepare the journal entries to record the following transactions:

a. The issuance of the bonds

b. The interest payment on June 30, 2017

c. The amortization of the premium on June 30, 2017 (use the straight-line method of amortization).

2. Calculate the amount of interest paid in cash during 2017 and the amount of interest expense that will appear in the 2017 income statement. Why are these amounts different?

3. Prepare a partial balance sheet at December 31, 2017 showing how the bonds payable and the premium on bonds should be shown on the balance sheet.

4. Prepare the journal entry on January 1, 2020 when the bonds were called at 106.


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Financial Accounting: How to record bonds payable and premium on bonds
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