Question

1) Premium Amortization

On the first day of the fiscal year, a company issues a $7,800,000, 11%, 5-year bond that pays semiannual interest of $429,000 ($7,800,000 × 11% × ½), receiving cash of $8,417,190.

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.

	Cash
	Premium on Bonds Payable
	Bonds Payable

2)

Discount Amortization

On the first day of the fiscal year, a company issues a $7,500,000, 12%, 9-year bond that pays semiannual interest of $450,000 ($7,500,000 × 12% × ½), receiving cash of $6,408,074.

Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

	Interest Expense
	Premium on Bonds Payable
	Cash

Answer 1

Correct Answer:

Requirement 1:

Date	General Journal	Debit	Credit
XX/XX/XX	Cash	$    8,417,190
	Premium on Bonds Payable		$            617,190
	Bonds Payable		$        7,800,000
	(Issuance of bonds with a par value of $ 7,800,000 at Premium)

Requirement 2:

Date	General journal	Debit	credit
	Interest expense	$ 480,605.55
	Discount on bonds payable		$        30,605.55
	Cash		$      450,000.00
	(being Discount on bonds amortized)

End of answer.

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