Question

Premium Amortization On the first day of the fiscal year, a company issues a $7,200,000, 12%, 7-year bond that pays semiannual interest of $432,000 ($7,200,000 12% x 12), receiving cash of $8,304,066 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. Interest Expense 321,594 x Premium on Bonds Payable 110,406 Cash 432,000 Feedback Check My Work Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond.

Answer 1

Answer is given below with working notes

Credit General Journal Interest expense premium on bonds payable Debit $353,138 $78,862 To Cash $432,000 Working notes: Issue price Cash received Premium on bond issue $7,200,000 $8,304,066 $1,104,066 7 years bond period Total 14 instalments Premium amortisation $78,862 ($1,104,066/14)