Answer:
The cash received from bond issuance is journalized as follows:
Dr Cash $285,600
Cr Bonds payable $280,000
Cr Premium on Bonds payable $5,600
The June 30 and 31 December Year 1 interest on the bonds are recorded thus:
30 June
Dr Interest expense(bal fig) $7,840
Dr Premium on bonds $560
Cr Cash $8400
31 December
Dr Interest expense(bal fig) $7,840
Dr Premium on bonds $560
Cr Cash $8400
The June 30 and 31 December Year 2 interest on the bonds are recorded thus:
30 June
Dr Interest expense(bal fig) $7,840
Dr Premium on bonds $560
Cr Cash $8400
31 December
Dr Interest expense(bal fig) $7,840
Dr Premium on bonds $560
Cr Cash $8400
Explanation:
The amount realized from the bond is calculated thus:
$280,000*102%=$285,600
Premium on bond=Bonds proceeds-par value
=$285,600-$280,000
=$5,600
Semi-annual amortization of bond premium=$5,600/5*6/12
=$560
Semi-annual interest payment=$280,000*6%*6/12
=$8,400
