Ammortalization

*PROBLEM 16-5B | |

On July 1, 2005, Clintin Corporation issued $4,000,000 face value, 10%, 10-year bonds at $4,543,626. This price resulted in an effective-interest rate of 8% on the bonds. Clintin uses the effective-interest method to amortize bond premium and discount. The bonds pay semiannual interest July 1, and January 1.

a-) Prepare the journal entry to record the issuance of the bonds

on July 1, 2005.

b-) Prepare the journal entry to record the accrual interest and

the amortization of the premium on December 31, 2005.

c-) Prepare the journal entry to record the payment of interest

and the amortization of the premium on July1, 2006,

assuming no accrual of interest on July 30.

d-) Prepare the journal entry to record the accrual interest and

the amortization of the premium on December 31, 2006.

e-) Prepare the amortization table through December 31, 2006.

(3 interest periods) for this bond issue.

(a) 2005

July  1 Cash 4,543,626

Bonds Payable 4,000,000

Premium on Bonds

  Payable   543,626

(b) Dec. 31 Bond Interest Expense   181,745

  ($4,543,626 X 4%)

Premium on Bonds Payable    18,255

Bond Interest Payable   200,000

  ($4,000,000 X 5%)

(c) 2006

July  1 Bond Interest Expense   181,015

  [($4,543,626 – $18,255) X 4%]

Premium on Bonds Payable    18,985

Cash   200,000

(d) Dec. 31 Bond Interest Expense   180,255

  [($4,525,371 – $18,985) X 4%]

Premium on Bonds Payable    19,745

Bond Interest Payable   200,000

(e) CLINTIN CORPORATION

Bond Premium Amortization

Effective-Interest Method—Semiannual Interest Payments

10% Bonds Issued at 8%

| | |(A) | |(B) | |(C) | |(D) | |(E) |

|Semi- | | | | | |Premium | |Unamor- | |Bond...