Question

Celine Dion Company issued $600,000 of 10%, 20-year bonds on January 1, 2020, at 102. Interest is payable semiannually on July 1 and January 1. Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.Prepare the journal entries to record the following. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)(a) The issuance of the bonds.(b) The payment of interest and related amortization on July 1, 2020.(c) The accrual of interest and the related amortization on December 31, 2020.

Answer 1

Answer:

 Celine Dion Company  

 Issuance of bond  

DR   Bank   612,000.00  

CR   Bond   612,000.00  

 Payment of interest(1 july)  

CR   Cash   29,897.73  

DR   Interest expense   29,897.73  

 Accrued Interest  

CR    Interest Accrual   29,897.73  

DR   Interest expense   29,897.73  

Explanation:

It is noteworthy that the amount realized from the issue of the bond is not $600000 but $612000 since it was sold at a premium of $2, to calculate that,multiply $600000 by $102 and divide both by $100 the par value per bond.

Also that the interest is calculated using 9.7705% ,the effective interest not the coupon rate of 10% and it is prorated by multiplying by 6 months divided by 12 months since each interest payment is for six month period.