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On January 1, a company issues bonds dated January 1 with a par value of $390,000....

On January 1, a company issues bonds dated January 1 with a par value of $390,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $405,830. The journal entry to record the first interest payment using straight-line amortization is: (Rounded to the nearest dollar.)

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Expert Solution

First interest payment journal entry

Transaction date Description Debit Credit
Jun-30 Bond interest expense $               15,967
Premium on bond $                 1,583
Cash $             17,550
(Interest on bond paid and Discount amortized)

Alternate entry assuming bond premium is amortized yearly

Transaction date Description Debit Credit
Jun-30 Bond interest expense $ 17,550
Cash $ 17,550
(Interest on bond paid and Discount amortized)

Working

Bond issue price (2000000/100*96)) $    4,05,830.00
Face value $    3,90,000.00
Premium on bond $        15,830.00
Number of Interest payments (5 years x 2) 10
Discount to be amortized per year $          1,583.00
Interest on bond semiannually $        17,550.00

ekkarill92 answered 1 year ago
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