Answer:
1) $1,223,163
2) bond premium amortization coupon 1 = $8,305
bond premium amortization coupon 2 = $8,554
3)
January 1, 2018, bonds are issued
Dr Cash 1,223,163
Cr Bonds payable 1,000,000
Cr Premium on bonds payable 223,163
4)
June 30, 2018, first coupon payment
Dr Interest expense 36,695
Dr Premium on bonds payable 8,305
Cr Cash 45,000
5)
December 31, 2018, second coupon payment
Dr Interest expense 36,446
Dr Premium on bonds payable 8,554
Cr Cash 45,000
Explanation:
bonds price = PV of face value + PV of coupons
PV of face value = $1,000,000 / 1.03²⁰ = $553,675.75
PV of coupon payments = $45,000 x 14.8775 (annuity factor 3%, 20 payments) = $669,487.50
issue price = $553,675.75 + $669,487.50 = $1,223,163.25 ≈ $1,223,163
Dr Cash 1,223,163
Cr Bonds payable 1,000,000
Cr Premium on bonds payable 223,163
amortization coupon 1 = $45,000 - ($1,223,163 x 3%) = $45,000 - $36,695 = $8,305
amortization coupon 2 = $45,000 - ($1,214,858 x 3%) = $45,000 - $36,446 = $8,554
