Question

A company issues 6%, 7-year bonds with a par value of $280,000 on January 1 at a price of $296,367, when the market rate of interest was 5%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:

Answer 1

Interest payment per coupon = $8,400

Step-by-step explanation:

Journal entry to record the bond issuance:

January 1, 202x, bonds are issued

Dr Cash 296,367

Cr Bonds payable 280,000

Cr Premium on bonds payable 16,367

assuming straight amortization for the bond premium:

amortization of bond premium per coupon payment = $16,367 / 14 = $1,169.07

Journal entry to record payment of coupons:

July 1, 202x

Dr Interest expense 7,230.93

Dr Premium on bonds payable 1,169.07

Cr Cash 8,400