Answer and Explanation:
The Journal entry is shown below:-
a. Cash Dr, $20,811,010
To Bonds payable $20,000,000
To Premium on Bonds payable $811,010
(Being issuance of the bond is recorded)
For recording this we debited the cash as it increased the assets and at the same time it also increased the liabilities so the bond payable and premium is credited
b. Interest expenses Dr, $818,899
Premium on Bonds payable $81,101 ($811,010 ÷ 5 × 6 ÷ 12 )
To Cash $900,000 ($20,000,000 × 9% × 6 ÷ 12)
(Being interest expense is recorded)
For recording this we debited the interest expense as it increased the expenses and credited the cash as it reduced the assets plus the remaining balance is debited to premium on bond payable
c.The contract rate of interest is higher than market rate of interest.
