Question
On July 1, 2025, Leanne Nguyen Services issued $ 72000 of 15% bonds that mature in ten years. They were issued at 105. The bonds pay semiannual interest payments on June 30 and December 31 of each year using the straight-line amortization method. Prepare the journal entries for the issuance of the bonds on July 1, 2025, and for the first interest payment on December 31, 2025. (Record debits first, then credits. Exclude explanations from journal entries.)
First Journalize the issuance of the bonds on July 1, 2025
First Journalize the issuance of the bonds on July 1, 2025
Answers
GPT-4o mini
Here are the journal entries for the issuance of the bonds on July 1, 2025:
**July 1, 2025**
```
Debit: Cash $75,600
Debit: Discount on Bonds Payable $3,600
Credit: Bonds Payable $72,000
```
**Note:**
- Cash received = $72,000 * 1.05 = $75,600 (issued at 105)
- Discount on Bonds Payable = $3,600 (the difference between cash received and face value: $75,600 - $72,000)
**July 1, 2025**
```
Debit: Cash $75,600
Debit: Discount on Bonds Payable $3,600
Credit: Bonds Payable $72,000
```
**Note:**
- Cash received = $72,000 * 1.05 = $75,600 (issued at 105)
- Discount on Bonds Payable = $3,600 (the difference between cash received and face value: $75,600 - $72,000)
are you sure? the debits are not the same amount as the credits
GPT-4o mini
I apologize for the mistake. You're correct that the debits and credits in a journal entry must balance. Here's the corrected journal entry for the issuance of the bonds on July 1, 2025:
### July 1, 2025
```
Debit: Cash $75,600
Credit: Bonds Payable $72,000
Credit: Premium on Bonds Payable $3,600
```
### Explanation:
- **Cash:** The amount received from issuing the bonds is $72,000 * 1.05 = $75,600.
- **Bonds Payable:** This is the face value of the bonds, which is $72,000.
- **Premium on Bonds Payable:** The premium on the bonds is the difference between the cash received and the face value, calculated as $75,600 - $72,000 = $3,600.
Thank you for your understanding, and I appreciate your patience. Now let's move on to the first interest payment on December 31, 2025. Would you like to proceed with that?
### July 1, 2025
```
Debit: Cash $75,600
Credit: Bonds Payable $72,000
Credit: Premium on Bonds Payable $3,600
```
### Explanation:
- **Cash:** The amount received from issuing the bonds is $72,000 * 1.05 = $75,600.
- **Bonds Payable:** This is the face value of the bonds, which is $72,000.
- **Premium on Bonds Payable:** The premium on the bonds is the difference between the cash received and the face value, calculated as $75,600 - $72,000 = $3,600.
Thank you for your understanding, and I appreciate your patience. Now let's move on to the first interest payment on December 31, 2025. Would you like to proceed with that?
Yes, Journalize the semiannual interest payment and amortization of the bond discount on December 31, 2025.
GPT-4o mini
Certainly! For the first semiannual interest payment on December 31, 2025, we also need to consider the amortization of the bond premium. Here are the calculations and the subsequent journal entry:
### Calculate the Semiannual Interest Payment:
- **Face Value of Bonds:** $72,000
- **Stated Interest Rate**: 15%
- **Semiannual Interest Payment**:
\[
\text{Semiannual Interest} = \text{Face Value} \times \left( \frac{\text{Stated Rate}}{2} \right)
\]
\[
= 72,000 \times 0.075 = 5,400
\]
### Amortization of the Premium:
Since there is a premium of $3,600 over the life of the bond (10 years or 20 periods), the semiannual amortization will be:
\[
\text{Amortization of Premium} = \frac{3,600}{20} = 180
\]
### The Journal Entry for December 31, 2025:
Now we can record the semiannual interest payment and the amortization of the premium.
```
Debit: Interest Expense $5,220
Debit: Premium on Bonds Payable $180
Credit: Cash $5,400
```
### Explanation:
- **Interest Expense:** This is the cash interest paid minus the amortization of the premium:
\[
\text{Interest Expense} = \text{Semiannual Interest} - \text{Amortization of Premium} = 5,400 - 180 = 5,220
\]
- **Premium on Bonds Payable:** This reflects the amortization of the bond premium.
- **Cash:** The total cash payment for interest is $5,400.
This entry accurately reflects the interest payment and the impact of the bond premium on interest expense. Let me know if you need any further assistance!
### Calculate the Semiannual Interest Payment:
- **Face Value of Bonds:** $72,000
- **Stated Interest Rate**: 15%
- **Semiannual Interest Payment**:
\[
\text{Semiannual Interest} = \text{Face Value} \times \left( \frac{\text{Stated Rate}}{2} \right)
\]
\[
= 72,000 \times 0.075 = 5,400
\]
### Amortization of the Premium:
Since there is a premium of $3,600 over the life of the bond (10 years or 20 periods), the semiannual amortization will be:
\[
\text{Amortization of Premium} = \frac{3,600}{20} = 180
\]
### The Journal Entry for December 31, 2025:
Now we can record the semiannual interest payment and the amortization of the premium.
```
Debit: Interest Expense $5,220
Debit: Premium on Bonds Payable $180
Credit: Cash $5,400
```
### Explanation:
- **Interest Expense:** This is the cash interest paid minus the amortization of the premium:
\[
\text{Interest Expense} = \text{Semiannual Interest} - \text{Amortization of Premium} = 5,400 - 180 = 5,220
\]
- **Premium on Bonds Payable:** This reflects the amortization of the bond premium.
- **Cash:** The total cash payment for interest is $5,400.
This entry accurately reflects the interest payment and the impact of the bond premium on interest expense. Let me know if you need any further assistance!