Question

A company issues 5%, 9-year bonds with a face amount of $70,000 for $75,247 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 4%. Interest is paid semiannually on June 30 and December 31.

Required:
1. & 2. Record the bond issue and first interest payment on June 30, 2021. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Answer 1

Please use alternate solution if the straight light method do not work.

Solution assuming straight line method for amortization is used.

Date	Account Title and Explanation	Debit	Credit
January 01, 2021	Cash	$ 75,247
	Premium on bonds payable		$ 5,247
	Bonds payable		$ 70,000
	(To record Issuance of bonds )
June 30, 2021	Bond interest expense	$ 1,459
	Premium on bonds payable	$ 292
	Cash		$ 1,750
	(Interest on bond paid and Premium amortized)

Working

Bond issue price	$            75,247.00
Face value	$            70,000.00
Premium on bonds payable	$               5,247.00
Number of Interest payments (9 years x 2)	18
Discount/ premium to be amortized per Half year	$                  291.50
Cash Interest on bond (70000 x 2.5%)	$               1,750.00
Interest expense to be recorded (1750-291.50)	$               1,458.50

Alternate solution

Date	Account Title and Explanation	Debit	Credit
January 01, 2021	Cash	$ 75,247
	Premium on bonds payable		$ 5,247
	Bonds payable		$ 70,000
	(To record Issuance of bonds )
June 30, 2021	Bond interest expense	$ 1,505
	Premium on bonds payable	$ 245
	Cash		$ 1,750
	(Interest on bond paid and Premium amortized)