Question

On December 31, 2018, Spearmint, Inc., issued $450,000 of 9 percent, 3-year bonds for cash of $461,795. After recording the related entry, Bonds Payable had a balance of $450,000 and Premium on Bonds Payable had a balance of $11,795. Spearmint uses the straight-line bond amortization method. The first semiannual interest payment was made on June 30, 2019.

Complete the necessary journal entry for June 30, 2019 by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Date General Journal Debit Credit
Dec. 31

Answer 1

December 31, 2018, bonds are issued

Dr Cash 461,795

Cr Bonds payable 450,000

Cr Premium on bonds payable 11,795

amortization expense per coupon = $11,795 / 6 coupon payments = $1,965.83

June 30, 2019, first coupon payment

Dr interest expense 18,284.17

Dr Premium on bonds payable 1,965.83

Cr Cash 20,250

The amortization of the premium on bonds payable decreases the interest expense.