Question

Premium Amortization On the first day of the fiscal year, a company issues a $1,500,000, 11%, 10-year bond that pays semiannual interest of $82,500 ($1,500,000 11% x V), receiving cash of $1,593,465. 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 77,826.75 x Premium on Bonds Payable 4,673.25 x Cash 82,500 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 amortization provides equal amounts of amortization over the life of the bond.

Hi, can you please check my work and tell me where I went wrong please? ive tried countless times. thank you so much!

Answer 1

Note: For the question 1 and the question 2, you forget to round your answer to nearest dollars.

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Question 1

Account and Explanation	Debit	Credit
Interest expense                            [Interest paid - Amortized premium = $82,500 - $4,673]	$77,827
Premium on bonds payable           [Refer working note]	$4,673
Cash		$82,500
(To record payment of interest and amortization of bond premium)

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Working note - Premium amortized for first interest period (6 months)
Total premium                                              [Issue price - Face value = $1,593,465 - $1,500,000]	$93,465
Premium amortized for a single year              [Total premium / Bond period = $93,465 / 10 years]	$9,346.50
Premium amortized for 6 months                  [$9,346.50 / 2]	$4,673.25

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Question 2

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Account and Explanation	Debit	Credit
Interest expense                            [Interest paid - Amortized premium = $120,000 - $22,316]	$97,684
Premium on bonds payable           [Refer working note]	$22,316
Cash		$120,000
(To record payment of interest and amortization of bond premium)

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Working note - Premium amortized for first interest period (6 months)
Total premium                                              [Issue price - Face value = $3,446,323 - $3,000,000]	$446,323
Premium amortized for a single year               [Total premium / Bond period = $446,323 / 10 years]	$44,632.30
Premium amortized for 6 months                  [$44,632.30 / 2]	$22,316.15

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Question 3

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Account and Explanation	Debit	Credit
Interest expense                            [Interest paid + Amortized discount = $60,000 + $7,967]	$67,967
Discount on bonds payable           [Refer working note]		$7,967
Cash		$60,000
(To record payment of interest and amortization of bond discount)

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Working note - Discount amortized for first interest period (6 months)
Total discount                                              [Face value - Issue price = $1,200,000 - $1,088,460]	$111,540
Discount amortized for a single year               [Total discount / Bond period = $111,540 / 7 years]	$15,934
Premium amortized for 6 months                  [$15,934 / 2]	$7,967