On January 1, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest on July 1 and January 1. The bonds were issued for $817,860 cash, which provided the holders an annual yield of 8%. Prepare the journal entry to record the first semiannual interest payment, assuming it uses the straight-line method of amortization.
Par value of bonds = $720,000
Stated interest rate= 10%
Issue price of bonds = $817,860
Premium on bonds payable = Issue price of bonds - Par value of bonds
Semi annual interest payment = Par value of bonds x Stated interest rate x 6/12
= 720,000 x 10% x 6/12
Semi annual amortization of bond premium = Premium on bonds payable / Semi annual interest payment periods
|July 1||Interest expense||$31,107|
|Premium on bonds payable||$4,893|
|( To record first semi annual interest payment)|
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