Question

On the first day of the fiscal year, a company issues a $3,200,000, 6%, 8-year bond...

On the first day of the fiscal year, a company issues a $3,200,000, 6%, 8-year bond that pays semiannual interest of $96,000 ($3,200,000 × 6% × ½), receiving cash of $3,408,880.

Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank

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Answer #1

Answer:

Account title and explanation Debit Credit
Interest expense $82,945
Premium on bonds payable $13,055
Cash $96,000
[To reocrd first interest payment amortization of bonds premium]

Calculations:

Issue price of the bonds $3,408,880
Face value ($3,200,000)
Premium on bonds payable $208,880
÷ Number of interest payaments [ 8 years x 2] 16
= Premium amortization [Straigh-line] $13,055

Interest expense is balance amount.

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