Question

In: Accounting

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.)

Solutions

Expert Solution

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

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