Wildhorse Company issued $500,000, 5%, 20-year bonds on January 1, 2020, at 102. Interest is payable annually on January 1. Wildhorse uses straight-line amortization for bond premium or discount. (a) Prepare the journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

A. Dr Cash $510,000

Cr Bonds Payable $500,000

Cr Premium on Bonds Payable $10,000

B. Dr Interest expense $24,667

Dr Premium on bonds payable$333

Cr Interest Payable $25,000

C. Dr Interest Payable $25,000

Cr Interest Expense $25,000

D. Dr Bond payable $500,000

Cr Cash $500,000

Explanation:

(a) Preparation of the journal entry to record the issuance of the bonds

Dr Cash $510,000

($500,000 x 1.02 = $510,000)

BCr BondsPayable $500,000

Cr Premium on Bonds Payable $10,000

($510,000-$500,000)

(To record the issuance of the bonds)

B. Preparation of the journal entry to record Accrual of interest and the premium amortization

Dr Interest expense $24,667

($25,000-$333)

Dr Premium on bonds payable$333

($10,000/30)

Dr Interest Payable $25,000

($500,000*5%)

(To record Accrual of interest and the premium amortization)

C. Preparation of the journal entry to record the payment of interest

Dr Interest Payable $25,000

($500,000*5%)

Cr Interest Expense $25,000

(To record the payment of interest)

D. Preparation of the journal entry to record the bonds at maturity

Dr Bond payable $500,000

Cr Cash $500,000

(To record the bonds at maturity)

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