Question

On January 1, a company issues bonds dated January 1 with a par value of $380,000. 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 $396,210. The journal entry to record the issuance of the bond is

Answer 1

See explanation

Step-by-step explanation:

Selling Price of Bonds =396,210

Journal Entry

Date Account Title and Explanation Debit Credit

1 Jan Cash $396,210

Bond payable $380,000

Premium on bond payable $ 16,210

(To record issuance of bond)

Working

Premium On Bonds Payable = Selling Price of Bonds - Value of Bonds

= $396,210 - $380,000 = $ 16,210

Interest payment:

Semi-annual interest = 7%× 380,000× 1/2 =13,300

Date Account Title and Explanation Debit Credit

June 30 Bond interest expense $13,300

Cash $13,300

(To record semi annual interest paid on bond)