Question

Record the appropriate journal entry to reflect the following: Bonds payable info: The principal amount (a.k.a. face value, par value, stated value) of these bonds = $150,000. These bonds have a 10 year term. The stated rate (a.k.a. contract rate, nominal rate, contract rate) of interest on these bonds = 5%.Theses bonds are dated July 1, 20XX (current year) and were sold on July 1, 20XX (current year) for the sum of $156,000. Interest on these bonds is to be paid semi-annually on January 1 and July 1 of each year. An entry needs to be made for December 31’s accrued interest due and for the appropriate amount relating to the amortization of the premium (use straight-line amortization for this premium). A checkwill be written and issued for the appropriate amount of interest due on January 1.

Answer 1

Solution:

Journal Entries
Date	Particulars	Debit	Credit
1-Jul	Cash Dr	$156,000.00
	To Bond payable		$150,000.00
	To Premium on Bond Payable		$6,000.00
	(Being bond issued on premium)
31-Dec	Interest Expense Dr	$3,450.00
	Premium on bond payable Dr ($6,000/10*6/12)	$300.00
	To Interest Payable ($150,000*5%*6/12)		$3,750.00
	(Being interest expense and premium amortization on bond recorded)
1-Jan	Interest Payable Dr	$3,750.00
	To Cash		$3,750.00
	(Being interest payment on bond recorded)