Question

Pretzelmania, Inc., issues 7%, 15-year bonds with a face amount of $67,000 for $73,566 on January 1, 2018. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid semiannually on June 30 and December 31. 1. & 2. Record the bond issue and first interest payment on June 30, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Solution:

Journal Entries
Date	Particulars	Debit	Credit
01-Jan	Cash A/c Dr	$73,566
	To Premium on Bond payable		$6,566
	To bonds payable		$67,000
	(Being bond issuance at discount)
30-Jun	Interest Expense Dr ($73,566*6%*6/12)	$2,207
	Premium on bond Payable Dr	$138
	To Cash ($67,000*7%*6/12)		$2,345
	(To Record the payment of interest)