Question

Current Attempt in Progress Marin Inc. issues $5.4 million, 10-year, 8% bonds at 101, 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 inden manually Date Account Titles and Explanation Debit Credit Jan. 1

Answer 1

Solution as per Below Image:

Journal Entries Amount In $ Cr Amount Date Jan 1,2022 Dr Amount 5454000 Account Titles and Explanation Cash (5400000 +54000) To 8% Bonds Payable To Premium on 8% Bonds Payable Being Bonds issued at Premium) 5400000 54000 426600 5400 8% Bond Interest Expense[(5400000X 8%)-5400] Premium on 8% Bonds Payable To Cash (Being Interest on 8% Bonds Paid and Premium on 8% Bonds payable amortized) 432000 Explanation 1 When we issue a bond at a premium, we are selling the bond for more than it is worth. We always record Bond Payable at the amount we have to pay back which is the face value or principal amount of the bond. The difference between the price we sell it and the amount we have to pay back is recorded in a liability account called Premium on Bonds Payable. the premium amount will be removed over the life of the bond by amortizing (which simply means dividing) it over the life of the bond.The premium will decrease bond interest expense when we record the interest payment. Explanation 2 Amortization of Premium on 8% Bond payable=54000/10 =$ 5400