Answer:
The Gorman Group
Journal Entries:
June 30, 2021:
Debit Cash $1,009,794
Credit Bonds Liability $930,000
Credit Bonds Premium $79,794
To record the bonds issuance
December 31, 2021:
Debit Interest Expense $50,490
Debit Amortization of Bonds Premium $660
Credit Cash $51,150
To record the payment of semi-annual interest, including amortization of premium.
June 30, 2022:
Debit Interest Expense $50,457
Debit Amortization of Bonds Premium $693
Credit Cash $51,150
To record the payment of semi-annual interest, including amortization of premium.
Explanation:
a) Data and Calculations:
Face value of 11% bonds issue $930,000
Issue price = $1,009,794
Bonds premium = $79,794
Market yield = 10%
December 31, 2021:
Semi-annual interest payment = $51,150 ($930,000 * 5.5%)
Semi-annual Interest expense = $50,490 ($1,009,794 * 5%)
Amortization of bonds premium = $660
June 30, 2022:
Semi-annual interest payment = $51,150 ($930,000 * 5.5%)
Semi-annual Interest expense = $50,457 ($1,009,134 * 5%)
Amortization of bonds premium = $693
