Question

Describe the journal entries required to record the issuance of bonds at a premium and the payment of bond interest, including any applicable amortization.

Answer 1

The Entry for issuance of bond will come as under

Description	Debit $	Credit $
Cash	xxxxx
Premium on bonds payable		xxxxx
Bonds payable		xxxxx

At the time of interest, company will pass the entry of interest of interest along with amortisation as under

Description	Debit $	Credit $
Interest expanses	xxxxxx
Premium on bonds payable		xxxxx
Cash		xxxxx

Let us take one example,

Suppose Company has issued $600,000 of 10%, 20-year bonds on January 1, at 102. Interest is payable semiannually on July 1 and January 1. Company uses the straight-line method of amortization for bond premium or discount

Now entry for recording the issuance of bonds at a premium and the payment of bond interest, including any applicable amortization as under

Particular		Debit		Credit
Cash		612,000
Premium on Bonds Payable				12,000
Bond payable				600,000
Interest Expense		29,700
Premium on Bonds Payable (12000/40)		300
Cash				30,000
Interest Expense		29,700
Premium on Bonds Payable		300
Interest Payable				30,000