Question

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.)

Answer 1

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