Question: Exercise 9-74 Using a Premium Amortization Table (Straight Line) For Dingle Corporation, the following amortization table was prepared when $400,000 of 5-year, 7% bonds were
Exercise 9-74 Using a Premium Amortization Table (Straight Line)
For Dingle Corporation, the following amortization table was prepared when $400,000 of 5-year, 7% bonds were sold on January 1, 2020, for $420,000.
| Period | Cash Payment (Credit) | Interest Expense (Debit) | Premium on Bonds Payable (Debit) | Premium on Bonds Payable Balance | Carrying Value |
| At issue | $20,000 | $420,000 | |||
| 06/30/20 | $14,000 | $12,000 | $2,000 | 18,000 | 418,000 |
| 12/31/20 | 14,000 | 12,000 | 2,000 | 16,000 | 416,000 |
| 06/30/21 | 14,000 | 12,000 | 2,000 | 14,000 | 414,000 |
| 12/31/21 | 14,000 | 12,000 | 2,000 | 12,000 | 412,000 |
| 06/30/22 | 14,000 | 12,000 | 2,000 | 10,000 | 410,000 |
| 12/31/22 | 14,000 | 12,000 | 2,000 | 8,000 | 408,000 |
| 06/30/23 | 14,000 | 12,000 | 2,000 | 6,000 | 406,000 |
| 12/31/23 | 14,000 | 12,000 | 2,000 | 4,000 | 404,000 |
| 06/30/24 | 14,000 | 12,000 | 2,000 | 2,000 | 402,000 |
| 12/31/24 | 14,000 | 12,000 | 2,000 | 0 | 400,000 |
Required:
1. Prepare the entry to recognize the issuance of the bonds on January 1, 2020.
| 2020 Jan. 31 | Cash | ||
| Bonds Payable | |||
| Premium on Bonds Payable | |||
| Record issuance of bonds at premium |
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1. When bonds are issued, any premium or discount is recorded in a separate valuation account.
2. Prepare the entry to recognize the first interest payment on June 30, 2020.
| 2020 June 30 | Interest Expense | ||
| Premium on Bonds Payable | |||
| Cash | |||
| Record interest expense |
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2. An amortization table helps calculate the proper amortization of bond premium or discount. They are particularly helpful when the effective interest rate method is used; however, this problem amortizes the premium using the straight-line method.
3. Determine what interest expense for this bond issue Dingle will report in its 2021 income statement. $
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3. Any premium or discount is amortized to interest expense over the life of the loan.
4. Indicate how these bonds will appear in Dingle's December 31, 2023 balance sheet.
| Dingle Corporation | ||
| Balance Sheet (partial) | ||
| December 31, 2023 | ||
| Bonds payable: | ||
| 7% Bonds, due 2024 | $ | |
| Add: Unamortized Premium on Bonds Payable | $ | |
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