Question

On June 30, 2020, Sage Company issued $3,551,000 face value of 13%, 20-year bonds at $3,818,140, a yield of 12%. Sage uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31. Your answer is partially correct.
Prepare the journal entries to record the following transactions. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts,
(1) The issuance of the bonds on June 30, 2020.
(2) The payment of interest and the amortization of the premium on December 31, 2020.
(3) The payment of interest and the amortization of the premium on June 30, 2021.
(4) The payment of interest and the amortization of the premium on December 31, 2021.

Answer 1

Answer: See attachment

Explanation:

The journal entry to record the transactions has been attached.

1. The issuance of the bonds on June 30, 2020.

Debit Cash $3818140

Credit Premium on bonds payable $267140

Credit Bonds payable $3551000

(2) The payment of interest and the amortization of the premium on December 31, 2020.

Debit Interest expense $229088.4

Debit Premium on bonds payable $1726.6

Credit Cash $230815

(3) The payment of interest and the amortization of the premium on June 30, 2021.

Debit Interest expense $228984.8

Debit Premium on bonds payable $1830.2

Credit Cash $2380815

(4) The payment of interest and the amortization of the premium on December 31, 2021.

Debit Interest expense $228975

Debit Premium on bonds payable $1940

Credit Cash $230815