Question

# On January 1, a company issued 10%, 10-year bonds payable with a par value of \$720,000....

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

= 817,860-720,000

= \$97,860

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

= 720,000 x 10% x 6/12

= \$36,000

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

= 97,860/20

= \$4,893

 Date General Journal Debit Credit July 1 Interest expense \$31,107 Premium on bonds payable \$4,893 Cash \$36,000 ( To record first semi annual interest payment)

Kindly comment if you need further assistance. Thanks‼!

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