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Journal entries on issuing the bonds payable, interest and amortization of premium on
bonds issued:
Date
Particulars
Debit
1Jan12
Cash
$1,040,000.00
Credit
Bonds Payable
$1,000,000.00
Premium on bonds payable
$40,000.00
issue of bonds at premium rate
1-Jul12
Interest expense
$50,000.00
Cash
$50,000.00
interest paid semi annually @5%
1-Jul12
Premium on bonds payable
$2,000.00
Cash
$2,000.00
Amortization of bonds premium using straight
line i.e., $40,000÷ (10 x 2)
1Jan13
Interest expense
$50,000.00
Cash
$50,000.00
interest paid semi annually @5%
1Jan13
Premium on bonds payable
$2,000.00
1/2
Cash
$2,000.00
Amortization of bonds premium using straight
line i.e., $40,000÷ (10 x 2)
Similarly, interest expense and premium on bonds payable will be amortized for
remaining years i.e., 2013, 2014 and July 2015 (which is 2.5 years)
Premium amortized till July 2015 will be 3.5 x $2,000 is $14,000
On July 1,2015, Bonds payable were called (assuming interest expense is paid and
premium is amortized for that installement)
Journal entry will be:
Date
Particulars
Debit
1-Jul-15
Bonds payable
$1,000,000.00
Premium on bonds ($40,000 - $14,000)
$26,000.00
Credit
Cash
$1,010,000.00
Gain on retirement of bonds
$16,000.00
Hence, there is gain of $16,000 on calling the bonds.
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