Premium AmortizationOn the first day of the fiscal year, a company issues a $6,600,000, 11%, 8-year bond that pays semiannual interest of $363,000 ($6,600,000 × 11% × ½), receiving cash of $7,341,446.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.

Question
Asked Nov 26, 2019

Premium Amortization

On the first day of the fiscal year, a company issues a $6,600,000, 11%, 8-year bond that pays semiannual interest of $363,000 ($6,600,000 × 11% × ½), receiving cash of $7,341,446.

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.

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Expert Answer

Step 1

Premium on bonds payable: It occurs when the bonds are issued at a higher price than the face value.

 

Step 2

Record the first interest payment:

Post
Credit
Debit (S)
Account Titles and Description
Date
Ref.
(S)
December 31,Interest on bond
$363,000
2013
Bank
$363,000
(To record the interest paid on bonds
semi-annually
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Post Credit Debit (S) Account Titles and Description Date Ref. (S) December 31,Interest on bond $363,000 2013 Bank $363,000 (To record the interest paid on bonds semi-annually

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Step 3

Calculate the amount of premium on bonds payable...

Total di scount
Premium
Number of half years in 8 years
$6,600.000 7,341.446
16
$46,340
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Total di scount Premium Number of half years in 8 years $6,600.000 7,341.446 16 $46,340

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