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Debt Issued at a Premium (Straight Line) On January 1, 2020, Ironman Steel issued $800,000, 8-year...

Debt Issued at a Premium (Straight Line) On January 1, 2020, Ironman Steel issued $800,000, 8-year bonds for $869,000. The stated rate of interest was 6% and interest is paid annually on December 31. Required: Prepare the necessary journal entry on December 31, 2023, assuming the straight-line method is followed. 2023 Dec. 31 Interest Expense Premium on Bonds Payable Cash (Record interest expense)

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Answer #1

The journal entry on December 31, 2023 to record the Interest Expenses

Account Titles and Explanation

Debit ($)

Credit ($)

Interest Expenses A/c

39,375

Premium on Bond Payable A/c

8,625

To Cash [ $800,000 x 6%]

48,000

[Journal entry on December 31, 2023 to record the Interest Expenses]

Issue Price of Bond = $869,000

Face Value of Bond = $800,000

Premium on Bond Payable

Premium on Bond Payable = Issue Price of the Bond – Face Value

= $869,000 – 800,000

= $69,000

Annual Amortization of Premium on Bond Payable

= $69,000 / 8 Years

= $8,625 per year

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