Question

On the first day of the fiscal year, a company issues a $430,000, 11%, 10-year bond...

On the first day of the fiscal year, a company issues a $430,000, 11%, 10-year bond that pays semiannual interest of $23,650 ($430,000 x 11% x 1/2), receiving cash of $451,500. Journalize the entry to record the first interest payment and amortization of premium using the straight-line method.

If an amount box does not require an entry, leave it blank.

1_____________

2_____________

3_____________

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Answer #1

Par value of bonds = $430,000

Issue price of bonds = $451,500

Premium on bonds payable = Issue price of bonds - Par value of bonds

= 451,500-430,000

= $21,500

Semi annual amortization of bonds premium = Premium on bonds payable /Semi annual interest payment period

= 21,500/20

= $1,075

Semi annual interest = Par value of bonds x Interest rate x 6/12

= 430,000 x 11% x 6/12

= $23,650

General Journal Debit Credit
Interest expense $22,575
Premium on bonds payable $1,075
Cash $23,650
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