Question

On January 1, 2019, Learned Inc. issued $105 million face amount of 20-year, 14% stated rate bonds when market interest rates were 16%. The bonds pay interest semiannually each June 30 and December 31 and mature on December 31, 2038. Table 6-4, Table 6-5 (Use appropriate factor from the table provided.) b-1. Assume instead that the proceeds were $108,600,000. Use the horizontal model to record the payment of semiannual interest and the related premium amortization on June 30, 2019, assuming that the premium of $3,600,000 is amortized on a straight-line basis. Indicate the financial statement effect. (Enter decreases with a minus sign to indicate a negative financial statement effect. Enter your answers in dollars, rather than in millions of dollars.)

Answer 1

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Premium		$                                          3,600,000
Amortization		$3,600,000/40 Years	$   90,000	per Period
Assets	=	Liabilities	+	Owner's Eaquity	Net Income	=	Revenue	-	Expense
Cash		Premium on Bond Payable							Interest Expense
$        (7,350,000)		$                                             (90,000)							$                 (7,260,000)
$105 M*7%)
		Journal Entry:
		Interest Expense	Dr	$                  7,260,000
		Premium on Bond Payable	Dr	$                        90,000
		Cash	Cr		$     7,350,000