Answer:
The Journal entries are as follows:
(a) On January 1,
Cash A/c Dr. $644,636
To Premium on bonds payable $44,636
To bonds payable $600,000
(To record the issuance)
(b) On July 1,
Interest expense A/c Dr. $19,339
Premium on bonds payable A/c Dr. $1,661
To cash A/c $21,000
(To record the interest expense)
Workings:
Interest expense:
= $644,636 × 6% × (6/12)
= $19,339
Cash:
= $600,000 × 7% × (6/12)
= $21,000
(c) On December 31,
Interest expense A/c Dr. $19,289
Premium on bonds payable A/c Dr. $1,711
To Interest payable A/c $21,000
(To record the adjusting entry)
Workings:
Interest expense:
= ($644,636 - $1,661) × 6% × (6/12)
= $19,289
Interest payable:
= $600,000 × 7% × (6/12)
= $21,000
