On January 1, a company issues bonds dated January 1 with a par value of $390,000....
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On January 1, a company issues bonds dated January 1 with a parvalue of $390,000. The bonds mature in 5 years. The contract rateis 9%, and interest is paid semiannually on June 30 and December31. The market rate is 8% and the bonds are sold for $405,830. Thejournal entry to record the first interest payment usingstraight-line amortization is: (Rounded to the nearestdollar.)
On January 1, a company issues bonds dated January 1 with a parvalue of $390,000. The bonds mature in 5 years. The contract rateis 9%, and interest is paid semiannually on June 30 and December31. The market rate is 8% and the bonds are sold for $405,830. Thejournal entry to record the first interest payment usingstraight-line amortization is: (Rounded to the nearestdollar.)
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First interest payment journal entry
| Transaction date | Description | Debit | Credit |
| Jun-30 | Bond interest expense | $ 15,967 | |
| Premium on bond | $ 1,583 | ||
| Cash | $ 17,550 | ||
| (Interest on bond paid and Discount amortized) | |||
Alternate entry assuming bond premium is amortized yearly
| Transaction date | Description | Debit | Credit |
| Jun-30 | Bond interest expense | $ 17,550 | |
| Cash | $ 17,550 | ||
| (Interest on bond paid and Discount amortized) | |||
Working
| Bond issue price (2000000/100*96)) | $ 4,05,830.00 |
| Face value | $ 3,90,000.00 |
| Premium on bond | $ 15,830.00 |
| Number of Interest payments (5 years x 2) | 10 |
| Discount to be amortized per year | $ 1,583.00 |
| Interest on bond semiannually | $ 17,550.00 |
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