Question

Whirlie Inc. issued $300,000 face value, 10% paid annually, 10-year bonds for $319,251 when the market of interest was 9%. The company uses the effective-interest method of amortization. At the end of the year, the company will record ________.

1. a credit to cash for $28,733
2. a debit to interest expense for $31,267
3. a debit to Discount on Bonds Payable for $1,267
4. a debit to Premium on Bonds Payable for $1.267

Answer 1

Answer : D) a Debit to Premium on Bonds Payable for $ 1,267

At the end of the YEar the Firm Must enter the interest Expenses Accounts ;

	Debit	Credit
Interest Expenses ( 319,251*9%)	28,733
The premium on Bonds Payable ( 30000-28733)	1,267
Cash (300,000*10%)		30,000