Assignment 4 Fall 2014 Acct201

1. Walker Corporation issued 14%, 5-year bonds with a par value of $5,000,000 on January 1, 2010. Interest is to be paid semiannually on each June 30 and December 31. The bonds were issued at $5,368,035 cash when the market rate for this bond is 12%
(a) Prepare the general journal entry to record the issuance of the bonds on January 1, 2010.
(b) Show how the bonds would be reported on Walker 's balance sheet at January 1, 2010.
(c) Assume instead that Walker uses the straight-line method for amortizing any discount or premium on bonds. Prepare the general journal entry to record the first semiannual interest payment on June 30, 2010.
(a) DR CR
Jan. 1, 2010 Cash 5,368,035 Premium on Bonds Payable 368,035 Bonds Payable 5,000,000 Issued bonds at a premium on issue date.
(b) Partial Balance Sheet as of Walkers Corporation Jan. 1, 2010
Long-Term Liabilities:
Bonds Payable 5,000,000 Maturity value
Add: Premium on Bonds Payable 368,035 $ 5,368,035 Carrying Value
(c)
Using the straight-line method, the premium amortization will be 36,803.5 every six months.
368,035/10 periods = 36,803.5 Interest: (5,000,000*0.14*0.5=350,000) DR CR
June 30, 2010 Bond Interest Expense 313,196.5 Premium on Bonds Payable 36,803.5

References: PowerPoint slide 29, 33, 34