Answer:
Cash 740,783 debit
Bonds payable 700,000 credit
Premium ob BP 40,783 credit
--to record issuance--
Interest expense 29,631.32 debit
premium on BP 1,868.68 debit
cash 31,500 credit
--to reocrd first interest payment--
Interest expense 29,556.57 debit
premium on BP 1,943.43 debit
interest payable 31,500 credit
--to record accrued interest at year-end on BP--
Explanation:
procceds 740,783
face value <u> 700,000 </u>
premium on bonds payable 40,783
When comparing, the firm received more than the face value hence, there is a premium on the bonds as the coupon payment are above the market rate.
Now, the interest will be calculate as follow:
carrying value x market rate:
740,783 x 0.08/2 = 29,631.32 interest expense
cash outlay:
700,000 x 0.09/2 = 31,500
amortization on premium (difference) 1,868.68
new carrying value: 740,783 - 1,868,68 = 738,914
second payment accrual:
738,914 x 0.04 = 29,556.57
cash outlay 31500
amortization 1,943.43
