Question

Presented below is a partial amortization schedule for Premium Foods:

Period Issue Date Cash Paid Interest Expense Decrease in Carrying Value Carrying Value
$85,959
1 $2,900 $2,586 $314 85,645
2 2,900 2,578 322 85,323

(1) Record the bond issue assuming the face value of bonds payable is $76,000.

(2) Record the first interest payment.

Answer 1

Dr cash $85,959

Cr bonds payable $76,000

Cr premium on bonds payable $9,959

Dr interest expense $2,586

Dr premium on bonds payable $314

Cr cash $2,900

Step-by-step explanation:

The cash realized from bond issuance is $85,959,which means that the bonds were issued at a premium $9959 ($85,959-$76,000).

In effecting the issuance in the books of accounts,cash account would be debited with $85,959 while bonds payable and premium on bonds payable are credited with $76,000 and $9,959 respectively.

The interest payment was $2,900,credited to cash and $2,586 and $314 are debited to interest expense and premium on bonds payable respectively.