On January 1, the first day of
the fiscal year, a company issues a $2,750,000, 8%, five-year bond
that pays semiannual interest of $110,000 ($2,750,000 x 8% x ½),
receiving cash of $2,938,110.
Homework Answers
Journal
| Date | Account title | Debit | Credit |
| June 30 | Interest expense | 91,189 | |
| Premium on bonds payable | 18,811 | ||
| Cash | 110,000 |
Premium on bonds payable = Cash received on issue of bonds - Face value of bonds
= 2,938,110 - 2,750,000
= $188,110
Premium on bond payable to be amortized semi- annually = 188,110/10
= $18,811
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