Page 606 - Accounting Principles (A Business Perspective)

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(A) (B) (C) (D) (E)
Interest Bond Interest Cash credit Discount on Carrying value of
Payment Expense Debit ($100,000 x Bonds Payable Bonds Payable
Date (E x 0.14 x ½) 0.12 x ½) Credit (B-C) (previous balance in E+D)
Issued Price $ 95,233
2010/12/31 $6,666 $6,000 $666 95,899
2011/6/30 6,713 6,000 713 96,612
2011/12/31 6,763 6,000 763 97,375
2012/6/30 6,816 6,000 816 98,191
2012/12/31 6,873 6,000 873 99,064
2013/6/30 6,936* 6,000 936 100,000
$40,767 $36,000 $4,767
Exhibit 120: Discount amortization schedule for bonds payable
This entry records interest for two months, July and August, of the six-month interest period ending on 2010
December 31. The first line of Exhibit 121 shows the interest expense and premium amortization for the six months.
Thus, the previous entry records two-sixths (or one-third) of the amounts for this six-month period. Carr would
record the remaining four months' interest when making the first payment on 2010 December 31. That entry reads:
2010
Dec. 31 Bond interest payable (-L) 2,000
Bond interest expense ($5,254 x (4/6)) (-SE) 3,503
Premium on bonds payable ($746 x 4/6) (-L) 497
Cash (-A) 6,000
To record four months' interest expense and semiannual interest
payment.
During the remaining life of the bonds, Carr would make similar entries for August 31 and December 31. The
amounts would differ, however, because Carr uses the interest method of accounting for bond interest. The entry

for each June 30 would be as indicated in Exhibit 121.
Redeeming bonds payable
Bonds may be (1) paid at maturity, (2) called, or (3) purchased in the market and retired. Bonds may also be
retired by being converted into stock. Each action is either a redemption of bonds or the extinguishment of debt. A

company that pays its bonds at maturity would have already amortized any related discount or premium and paid
the last interest payment. The only entry required at maturity would debit Bonds Payable and credit Cash for the
face amount of the bonds as follows:
2013
June 30 Bond payable (-L) 100,000
Cash (-A) 100,000
To pay bonds on maturity date.

(A) (B) (C) (D) (E)
Interest Bond Interest Cash credit Discount on bonds Carrying value of
Payment
Expense Debit ($100,000 x Payable credit Bonds payable
(E x 0.10 x ½) 0.12 x ½) (B- C) (previous balance
in E-D)
Issue Price $105,076
2010/12/31 $ 5,254 $6,000 $ 746 104,330
2011/6/30 5,216* 6,000 784 103,546
2011/12/31 5,177 6,000 823 102,723
2012/6/30 5,136 6,000 864 101,859
2012/12/31 5,093 6,000 907 100,952
2013/6/30 5,048 6,000 952 100,000
$30,924 $36,000 $5,076
*Rounded down.
Exhibit 121: Premium amortization schedule for bonds payable

Accounting Principles: A Business Perspective 607 A Global Text