Question

On the first day of the fiscal year, a company issues an $7,500,000, 8%, five-year bond that pays semiannual interest of $300,000 ($7,500,000 × 8% × ½), receiving cash of $7,740,000.

journalize the first interest payment and the amortization of the related bond premium. round to the nearest dollar. if an amount box does not require an entry, leave it blank.

Answer 1

$7,500,000 in 8% bonds, 5 years to maturity, semiannual coupon ($300,000)

sold at premium for $7,740,000

the journal entry to record the issuance should be:

Dr Cash 7,740,000

Cr Bonds payable 7,500,000

Cr Bond premium 240,000

Using the straight line amortization:

amortization per coupon payment = $240,000 / 10 coupons = $24,000

Dr Interest expense 276,000

Dr Bond premium 24,000

Cr Cash 300,000