# Volunteer Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received$540,000. Interest is payable annually. The premium is amortized using the straightline method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. June 30, 2019: entry to record payment of interest to bondholders C. June 30, 2019: entry to record amortization of premium D. June 30, 2020: entry to record payment of interest to bondholders E. June 30, 2020: entry to record amortization of premium

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### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 13, Problem 5PA
Textbook Problem
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## Volunteer Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received$540,000. Interest is payable annually. The premium is amortized using the straightline method. Prepare journal entries for the following transactions.A. July 1, 2018: entry to record issuing the bondsB. June 30, 2019: entry to record payment of interest to bondholdersC. June 30, 2019: entry to record amortization of premiumD. June 30, 2020: entry to record payment of interest to bondholdersE. June 30, 2020: entry to record amortization of premium

To determine

Introduction:

Journal entries record business transactions. These transactions have double effect on accounts such that total of all assets equate with liabilities and equities.

To prepare:

Journal entries for the given transactions.

### Explanation of Solution

Record issuance of bond:

 Date Account Debit ($) Credit ($) July 1, 2018 Cash 540,000 Premium on bond payable 40,000 Bond payable 500,000 (To record issuance of bond.)

Table (1)

• Cash is an asset and it is increased by $540,000. Therefore, cash is debited with$540,000.
• Premium on bond payable is a contra liability account and it is decreased by $40,000. Therefore, premium on bond payable is credited with$40,000.
• Bond payable is a liabilty account and it is increased by $500,000. Therefore, bond payable is credited with$500,000.

Record interest expense:

 Date Account Debit ($) Credit ($) June 30, 2019 Interest Expense ($500,000×10%) 50,000 Cash 50,000 (To record interest expense on bonds payable.) Table (2) • Interest Expense is an expense and it is increased by$50,000. Therefore, interest expense is debited with $50,000. • Cash is an asset and it is decreased by$50,000. Therefore, cash is credited with $50,000. Record amortization of premium:  Date Account Debit ($) Credit ($) June 30, 2019 Premium on bond payable ($40,0004) 10,000 Interest expense 10,000 (To record amortization of premium on bonds payable

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