Question

Grocery Corporation received $300,328 for 11 percent bonds issued on January 1, 2018, at a market interest rate of 8 percent. The bonds had a total face value of $250,000, stated that interest would be paid each December 31, and stated that they mature in 10 years. Assume Grocery Corporation uses the straight-line method to amortize the bond premium.

Prepare the required journal entries to record the bond issuance and the first interest payment on December 31.

Answer 1

Dr Cash $300,328

Cr To Bonds Payable $250,000

Cr To Premium on Bonds payable $50,328

Dr Interest Expense $24,026

Dr Premium on bonds payable $3,474

Cr Cash $27,500

Step-by-step explanation:

Preparation of the required journal entries to record the bond issuance and the first interest payment on December 31.

Dr Cash $300,328

Cr To Bonds Payable $250,000

Cr To Premium on Bonds payable $50,328

($300,328-$250,000)

(Being bond issued at a premium is recorded)

Dr Interest Expense $24,026

($300,328 × 8%)

Dr Premium on bonds payable $3,474

($27500-$24,026)

Cr Cash $27,500

($250,000 ×11%)

(Being interest expense recorded)