Question

On January 1, a company issues bonds dated January 1 with a par value of $290,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 6% and the bonds are sold for $302,371. The journal entry to record the first interest payment using straight-line amortization is: (Rounded to the nearest dollar.)

Answer 1

the journal entry used to record the issuance of the bonds is:

January 1, $290,000 in bonds payable issued

Dr Cash 302,371

Cr Bonds payable 290,000

Cr Premium on bonds payable 12,371

since the premium will be amortized using the straight line method, the $12,371 must be divided by 10 (10 semiannual payments) = $1,237.10

the journal entry required to record the first coupon payment is:

June 30, first interest payment on bonds payable

Dr Interest expense 8,912.90

Dr Premium on bonds payable 1,237.10

Cr Cash 10,150