Question

3) On January 1, 2019, Booth Sales issues $30,000 in bonds for $32,000. These are 5-year bonds with a stated rate of 4%, and pay semiannual interest. Booth Sales uses the straight-line method to amortize bond premium. 10 points A) Prepare the journal entry for the issuance of the bonds on January 1, 2019 B) Prepare the journal entry for the first interest payment on June 30, 2019.

Answer 1

a)

Journal

Date	Account title	Debit	Credit
Jan. 1, 2019	Cash	$32,000
	Bonds payable		$30,000
	Premium on bonds payable		$2,000
	(To record issue of bonds at premium)

Par value of bonds = $30,000

Cash receipts from issue of bonds = $32,000

Premium on bonds payable = Par value of bonds - Cash receipts from issue of bonds

= $32,000 - $30,000

= $2,000

b)

Journal

June 30, 2019	Interest expense	400
	Premium on bonds payable	200
	Cash		$600
	(To record semi annual interest expense)

Semi annual interest payment on June 30, 2019 = Par value of bonds x Interest rate x 6/12

= 30,000 x 4% x 6/12

= $600

Semi annual amortization of bond premium = 2,000/10

= $200

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