Question

On January 1, 2020, ABC Ltd. sold five year, 6% bonds with a face value of $ 400,000. Interest will be paid semi-annually on June 30 and December 31. The bonds were sold for $ 417,505 to yield 5%. Using the effective-interest method of amortization of bond discount or premium, prepare the journal entries for 2020.

Answer 1

Date	Account Titles	Debit	Credit
Jan. 1	Cash	$        417,505
2020	Bonds Payable		$        400,000
	Premium on Bonds Payable		$          17,505
Date	Account Titles	Debit	Credit
Jun. 30	Interest Expense	$          10,438		=417505*5%*1/2
2020	Premium on Bonds Payable	$            1,562
	Interest Payable		$          12,000	=400000*6%*1/2
Dec. 31	Interest Expense	$          10,399		=(417505-1562)*5%*1/2
2020	Premium on Bonds Payable	$            1,601
	Interest Payable		$          12,000