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On January 1 of Year 1, Lily Company issued a $100,000, 16%, 15-year bond. Interest is...

  1. On January 1 of Year 1, Lily Company issued a $100,000, 16%, 15-year bond. Interest is paid semi-annually each June 30 and December 31, so the first contract interest payment was made on June 30 of Year 1 and the second contract interest payment was made on December 31 of Year 1. On the day the bond was issued, the annual market interest rate on bonds with the same degree of riskiness was 8%. Lily uses the effective-interest method on its books. Note: Round all calculations to the nearest dollar. The entry to record the FIRST contract interest payment on June 30 of Year 1 would include a

    CREDIT to Premium on Bonds of $6,765

    DEBIT to Premium on Bonds of $6,765

    CREDIT to Premium on Bonds of $1,235

    CREDIT to Premium on Bonds of $1,284

    DEBIT to Premium on Bonds of $1,284

    CREDIT to Premium on Bonds of $6,765

    DEBIT to Premium on Bonds of $6,765

    DEBIT to Premium on Bonds of $1,235
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Answer #1
Particulars PV Factor
(4%, 30 Period)		 Net Value
Semi annual Interest rate
= 8% / 2
= 4%		 Principal = $100,000 0.308 $30,800
Semi Annual Period
= 15 x 2
= 30		 Interest = $100,000 x 8%
= $8,000		 17.292 $138,336
$169,136
Accounts Titles and Explanation Debit (in $) Credit (in $)
Interest expense
($169,136 x 8% x 1/2)		 $6,765
Premium on bonds $1,235
                    Cash
                (100,000 x 16% x 1/2)		 $8,000
Last Option is Correct
DEBIT to Premium on Bonds of $1,235
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