Question

On January 1, a company issues bonds dated January 1 with a par value of $280,000. 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 $291,365. The journal entry to record the first interest payment using straight-line amortization is: (Rounded to the nearest dollar.)

Multiple Choice

• Debit Interest Payable $12,600; credit Cash $12,600.

• Debit Bond Interest Expense $13,737; credit Premium on Bonds Payable $1,137; credit Cash $12,600.

• Debit Bond Interest Expense $11,463; debit Discount on Bonds Payable $1,137; credit Cash $12,600.

• Debit Bond Interest Expense $11,463; debit Premium on Bonds Payable $1,137; credit Cash $12,600.

• Debit Bond Interest Expense $13,737; credit Discount on Bonds Payable $1,137; credit Cash $12,600.

Answer 1

Accounts titles and Explanation	Debit (in $)	Credit (in $)
Bond Interest expense	$11,463
Premium on Bonds Payable ($291,365 (-) $280,000) / 10	$1,137
Cash                ($280,000 x 9% x 6/12)		$12,600
(To record the first interest payment)
Option ( C) is correct Debit Bond Interest Expense $11,463; Debit Premium on Bonds Payable $1,137; credit Cash $12,600.