Answer:
Interest expense ($175,000 - $40,000) $135,000
Bond premium $40,000
To Cash $175,000
(Being the interest payment is recorded)
Explanation:
The journal entry is shown below:
Interest expense ($175,000 - $40,000) $135,000
Bond premium $40,000
To Cash $175,000
(Being the interest payment is recorded)
For recording this we debited the interest expense and bond premium and credited the cash as it reduced the assets
The computation is shown below:
For premium
= Cash proceeds - face value
= $5,400,000 - $5,000,000
= $400,000
And,
The number of periods is:
= 5 years × 2
= 10 years
And,
The amortization amount
= $400,000 ÷ 10 years
= $40,000
We assumed the straight-line method is followed
