Question

Hillside issues $2900000 of 9% 15-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $3549590.

Answer 1

Dr. Cash $3,549,590

Cr. Premium on Account Receivable $649,590

Cr. Bond Payable Account $2,900,000

Step-by-step explanation:

The difference between the face value of the bond and the sale value of the bond is known as premium or the discount on the bond. If the face value is higher from the sale value the bond is issued on the discount and if the sale value of the bond is higher than the face value the bond is issued on the premium.

Premium on the Bond = Face value - Sale value = $3,549,590 - $2,900,000 = $649,590

The Premium will be amortized during the life of the bond to maturity and deducted from the interest expense.