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Exercise 22.4, 22.5, and 22.6Exercise 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 $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:

2007April 1 Cash 101,200

10% bonds payable, 2017 100,000 Premium on bonds payable 1,200

issued bonds at 101.2

Exercise 22.5What amount of premium will be amortized by Angel Inc.

on October 1, 2007, using straight-line amortization?

2007Oct 1 Premium on bonds payable 60

Bond interest expense 60 amortized premium for six months ($1,200/120) x 6 months = 60

Exercise 22.6Give the adjusting entry that would be made by Angel

Inc. on December 31, 2007 to record accrued interest and to amortize the premium

2007Dec 31 Bond interest expense 2,470

Premium on bonds payable 30 Bond interest payable 2,500Accrued interest and amortized premiumfor 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.