The following is taken from the Colaw Company balance sheet — Interest payable semiannually January and July bonds are callable any semiannual date

The following is taken from the Colaw Company balance sheet.

.:.

Interest is payable semiannually on January 1 and July 1. The bonds are callable on any semiannual interest date. Colaw uses straight-line amortization for any bond premium or discount. From December 31, 2014, the bonds will be outstanding for an additional 10 years (120 months).

Instructions

(a) Journalize the payment of bond interest on January 1, 2015.

(b) Prepare the entry to amortize bond premium and to pay the interest due on July 1, 2015, assuming no accrual of interest on June 30.

(c) Assume that on July 1, 2015, after paying interest, Colaw Company calls bonds having a face value of $1,200,000. The call price is 101. Record the redemption of the bonds.

(d) Prepare the adjusting entry at December 31, 2015, to amortize bond premium and to accrue interest on the remaining bonds.

SOLUTION:

(a) 2015

Jan.  1 Interest Payable   105,000**

Cash   105,000

(b) July  1 Interest Expense   95,000**