Question

Kingbird, Inc. issues $5.2 million, 10-year, 9% bonds at 103, with interest payable on January 1. The straight-line method is used to amortize bond premium. Prepare the journal entry to record the sale of these bonds on January 1, 2022. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 1

Answer 1

Solution:

Journal entry to record the sale of bond:

Date	Account Titles and Explanation	Debit	Credit
Jan. 1	Cash ( 5.2 Million / 100 * 103)	$     5,356,000
	Premium on Bonds Payable		$                156,000
	Bonds Payable		$             5,200,000
	(Being bond issued at premium )

Journal entry for interest paid and premium amortized.

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	Interest Expense	$         452,400
	Premium on Bonds Payable ($ 156,000 / 10 years)	$           15,600
	Cash ( 5.2 Million * 9%)		$                468,000
	( Being interest expense paid)

Notes:

1) As per straight line method, premium is amortized over a period of 10 years.