Homework Answers
1) 102.5 means bonds have been issued at a premium of 2.5%. Any fraction above 100 indicates that bonds are being issued at a premium and any fraction below 100 indicates that bonds are being issued at a discount.
2) Journal
| April 30 | Cash | 51,250,000 | |
| Bonds | 50,000,000 | ||
| Premium on bonds payable | 1,250,000 |
3) Journal
| Oct. 31 | Interest expense | 1,062,500 | |
| Cash | 1,062,500 |
4) Journal
| Oct. 31 | Premium on bonds payable | 62,500 | |
| Interest expense | 62,500 |
Semi annual interest expense = 50,000,000 x 4.25/100 x 6/12
= $1,062,500
Bond premium to be amortized semi annually = 1,250,000/20
= $62,500
Kindly comment if you need further assistance. Thanks
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