Question

On the first day of the fiscal year, a company issues a $2,000,000, 8%, five-year bond that pays semiannual interest of

(2 million x 8% x ½)
, receiving cash of $2,170,604.
journalize the first interest payment and the amortization of the related bond premium. (Round to the nearest dollar.)

Answer 1

To journalize the first interest payment and the amortization of the related bond premium, a company would record the transactions in its journal. For the interest payment, the company would debit the interest expense and credit cash. For the amortization of the bond premium, the company would debit bond premium amortization and credit bond premium.

Step-by-step explanation:

Journalizing the first interest payment and the amortization of the related bond premium involves recording the transactions in the company's journal. Here's an example of how it can be done:

Journal Entry for the First Interest Payment:

• Debit: Interest Expense (2,000,000 x 8% x 1/2) = $80,000
• Credit: Cash = $80,000

Journal Entry for Amortizing the Bond Premium:

• Debit: Bond Premium Amortization (Premium amount / Number of periods) = $x
• Credit: Bond Premium = $x

Here, x represents the amount of bond premium that needs to be amortized for each payment period.