Question

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the first interest payment using straight-line amortization is: g

Answer 1

Answer:

The journal entry to record the issuance is:

January 1, bonds are issued

Dr Cash 312,177

    Cr Bonds payable 300,000

    Cr Premium on bonds payable 12,177

total coupons = 5 x 2 = 10

premium discount per coupon = $12,177 / 10 = $1,217.70

The journal entry to record the first coupon payment:

July 1, first coupon payment

Dr Interest expense 12,282.30

Dr Premium on bonds payable 1,217.70

    Cr Cash 13,500