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

Solution

Date	Account Title and Explanation	Debit	Credit
June 30	Bond interest expense	$ 33,517
	Premium on bonds payable	$ 1,583
	Cash		$ 35,100
	(Interest on bond paid and Discount amortized)

Working

Bond issue price	$          405,830.00
Face value	$          390,000.00
Premium on bonds payable	$            15,830.00
Number of Interest payments (5 years x 2)	10
Discount/ premium to be amortized per Half year	$               1,583.00
Cash Interest on bond (390000 x 9%)	$            35,100.00
Interest expense to be recorded (35100-1583)	$            33,517.00