*P10-7B The following section is taken from Centralia Oil Company”s balance sheet at December 31, 2011.
| Current liabilities | ||
| Interest payable | $ 216,000 | |
| Long-term liabilities | ||
| Bonds payable (6%, due January 1, 2022) | $3,600,000 | |
| Add: Premium on bonds payable | 280,000 | 3,880,000 |
Interest is payable annually on January 1. The bonds are callable on any annual interest date. Centralia uses straight-line amortization for any bond premium or discount. From December 31, 2011, the bonds will be outstanding for an additional 10 years (120 months).
Instructions
(Round all computations to the nearest dollar.)
(a) Journalize the payment of bond interest on January 1, 2012.
(b) Prepare the entry to amortize bond premium and to accrue interest due on December 31, 2012.
(c) Assume on January 1, 2013, after paying interest, that Centralia Company calls bonds having a face value of $1,800,000. The call price is 102. Record the redemption of the bonds.
(d) Prepare the adjusting entry at December 31, 2013, to amortize bond premium and to accrue interest on the remaining bonds.
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