Answer:
Dr Cash $540,000
Cr Bonds payable $500,000
Cr Premium on bonds payable $40,000
June 30 2019
Dr interest expense($50,000-$10,000) $40,000
Dr Premium on bonds payable $10,000
Cr cash $50,000
June 30 2020
Dr interest expense($50,000-$10,000) $40,000
Dr Premium on bonds payable $10,000
Cr cash $50,000
Explanation:
The premium on the issue of the bonds is the difference between cash proceeds from the issue and the face value of the bonds.
premium=$540,000-$500,000=$40,000
Amortization of the bond premium is $10,000 per year($40,000/4)
The issue of the bond and the attendant receipt of $540,000 cash would enable the cash account to debited with proceeds while the face value of $500,000 and the premium of $40,000 would be credited to bonds payable and premium on bonds payable respectively.
interest on annual basis=$500,000*10%=$50,000
