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Manilow Company issued $700,000, 9%, 20-year bonds on January 1, 2014, at 103
Manilow Company issued $700,000, 9%, 20-year bonds on January 1, 2014, at 103. Interest is payable semiannually on July 1 and January 1. Manilow uses straight-line amortization for bond premium or discount. Prepare the journal entries to record the following.
a) The issuance of the bonds.
b) The payment of interest and the premium amortization on July 1, 2014, assuming that interest was not accrued on June 30.
c) The accrual of interest and the premium amortization on December 31, 2014.
d) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.
Expert Solution
a) The issuance of the bonds.
| Accounts | Debit | Credit |
|---|---|---|
| Cash (700,000 * 103) | 721,000 | |
| Premium on Bonds Payable (721,000 - 700,000) | 21,000 | |
| Bonds Payable | 700,000 |
b) The payment of interest and the premium amortization on July 1, 2014, assuming that interest was not accrued on June 30.
| Accounts | Debit | Credit |
|---|---|---|
| Premium on Bonds Payable (21,000 / 20 years / 2) | 525 | |
| Interest Expense (700,000 * 9% * 6 / 12) - 525 | 30,975 | |
| Cash | 31,500 |
c) The accrual of interest and the premium amortization on December 31, 2014.
| Accounts | Debit | Credit |
|---|---|---|
| Premium on Bonds Payable (21,000 / 20 years / 2) | 525 | |
| Interest Expense (700,000 * 9% * 6 / 12) - 525 | 30,975 | |
| Interest Payable | 31,500 |
d) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.
| Accounts | Debit | Credit |
|---|---|---|
| Bonds Payable | 700,000 | |
| Cash | 700,000 |
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