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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Premium amortization

Using the bond from Practice Exercise 14-5B, journalize the first interest payment and amortization of the related bond premium. Round to the nearest dollar.

To determine

Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

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

To prepare: Journal entry to record first interest payment and amortization of premium on bonds.

Explanation

Prepare journal entry for first interest payment and amortization of premium on bonds.

Date Account Title and Explanation Post Ref Debit ($) Credit ($)
Interest Expense (3) 409,113
 Premium on Bonds Payable  (1) 30,887
Cash (2) 440,000
(To record semiannual payment of interest and amortization of premium on bonds)

Table (1)

Working notes:

Calculate premium on bonds payable semiannually.

 Premium on bonds payable semiannually)=PremiumonbondspayableperyearNumberofsemiannual=$308,86910=$30,887  (1)

Calculate the amount of cash interest

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