Answer and Explanation:
Before recording the journal entries following calculations need to be made
Maturity amount $390,000
Interest periods 8
The Market rate of interest 3%
Now Quarterly interest paid $15,600 ($390,000 × 16% ×3 ÷ 12)
Annuity factor for 8 periods 7.0197
And, Present value factor for 8th period 0.7894
So,
The Present value of Interest $109,507
Add: And, the Present value of Maturity $307,866
Issue price $417,373
Amortization table
<u>Date Interest paid Interest Premium Unamortized Carrying </u>
<u> Expense Amortized Premium Value </u>
01.01 Yr1 $27,373 $417,373
31.03 Yr 1 $15,600 $12,521 $3,079 $24,294 $414,294
30.06 Yr 1 $15,600 $12,429 $3,171 $21,123 $411,123
30.09 Yr1 $15,600 $12,334 $3,266 $17,857 $407,857
31.12 Yr 1 $15,600 $12,236 $3,364 $14,493 $404,493
Now the Journal entries
For Jan 1
Cash account Dr. $417,373
To Bonds payable $390,000
To Premium on bonds payable $27,373\
(Being the bond payable is recorded)
On Mar 31
Interest expense Dr. $12,521
Premium on bonds payable Dr. $3,079
To Cash $15,600
(Being cash paid is recorded)
On Jun 30
Interest expense Dr. $12,429
Premium on bonds payable Dr. $3,171
To Cash $15,600
(Being cash paid is recorded)
On Sep 30
Interest expense Dr. $12,334
Premium on bonds payable Dr. $3,266
To Cash $15,600
(being cash paid is recorded)
On Dec 31
Interest expense Dr. $12,236
Premium on bonds payable Dr. $3,364
To Cash $15,600
(being cash paid is recorded)
