Presentation on theme: "Sample Problems Exercise 22.4, 22.5, and 22.6. The following information is for use in exercises 22.4 through 22.6 Angel Inc. was authorized to issue."— Presentation transcript:
The following information is for use in exercises 22.4 through 22.6 Angel Inc. was authorized to issue $1,000,000 of 10 percent bonds. On April 1, 2007, the corporation issued bonds with a face value of $100,000 at a price of 101.2. The bonds mature 10 years from the date of issue. Interest is payable semiannually on October 1 and April 1.
Exercise 22.4 Give the general journal entry to record the April 1, 2007 bond issue: 2007 April 1Cash101,200 10% bonds payable, 2017100,000 Premium on bonds payable 1,200 issued bonds at 101.2
Exercise 22.5 What amount of premium will be amortized by Angel Inc. on October 1, 2007, using straight-line amortization? 2007 Oct 1Premium on bonds payable60 Bond interest expense60 amortized premium for six months ($1,200/120) x 6 months = 60
Exercise 22.6 Give the adjusting entry that would be made by Angel Inc. on December 31, 2007 to record accrued interest and to amortize the premium 2007 Dec 31Bond interest expense2,470 Premium on bonds payable 30 Bond interest payable2,500 Accrued interest and amortized premium for three months *Interest expense: $100,000 x 10% x 3/12 = 2,500; note that the premium decreases the interest expense amount, but the payable is for the total.
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