Answer:
The Journal entries are as follows:
(a) On January 1, 2020
Cash A/c [$504,000 × 1.02] Dr. $514,080
To Bonds payable $504,000
To Premium on Bonds payable $10,080
(To record the issuance of the bonds)\
(b) On July 1, 2020
Interest expense A/c Dr. $25,114
Premium on Bonds payable A/c Dr. $86
To cash $25,200
(To record the payment of interest and related amortization)
Workings:
Interest expense:
= $514,080 × (9.7705% ÷ 2)
= $514,080 × 0.0488525
= $25,114
Cash = $504,000 × (10% ÷ 2)
= $25,200
(c) On December 31, 2020
Interest expense A/c Dr. $25,110
Premium on Bonds payable A/c Dr. $90
To Interest payable $25,200
(To record the accrual of interest and the related amortization)
Workings:
Interest expense:
= ($514,080 - 86) × (9.7705% ÷ 2)
= $513,994 × 0.0488525
= $25,110
