Prepare the journal entries to record the first two semiannual interest payment
ID: 2369402 • Letter: P
Question
Prepare the journal entries to record the first two semiannual interest payment
At issue date:
Unamortized Premium
162,290
Carrying Value
2,162,290
1st Payment
Cash Payment
100,000 (2,000,000 x 5% stated rate)
Interest Expense
86,492 (2,162,290 x 4% effective interest)
Premium Amortization
13,508 (100,000 - 86,492)
Unamortized Premium
148,782 (162,290 - 13,508)
Carrying Value
2,148,782 (2,162,290 - 13,508)
2nd Payment
Cash Payment
100,000 (2,000,000 x 5% stated rate)
Interest Expense
85,951 (2,148,782 x 4% effective interest)
Premium Amortization
14,049 (100,000 - 85,951)
Unamortized Premium
134,733 (148,782 - 14,049)
Carrying Value
2,134,733 (2,148,782 - 14,049)
Explanation / Answer
(1) Prepare the journal entry to record the issuance of the bonds.
Dr Cash 2,162.290
Cr Premium on Bonds Payable 162,290
Cr Bonds Payable 2,000,000
(2) Prepare an amortization table for the first two semiannual payment periods using the format shown below.
At issue date:
Unamortized Premium
162,290
Carrying Value
2,162,290
1st Payment
Cash Payment
100,000 (2,000,000 x 5% stated rate)
Interest Expense
86,492 (2,162,290 x 4% effective interest)
Premium Amortization
13,508 (100,000 - 86,492)
Unamortized Premium
148,782 (162,290 - 13,508)
Carrying Value
2,148,782 (2,162,290 - 13,508)
2nd Payment
Cash Payment
100,000 (2,000,000 x 5% stated rate)
Interest Expense
85,951 (2,148,782 x 4% effective interest)
Premium Amortization
14,049 (100,000 - 85,951)
Unamortized Premium
134,733 (148,782 - 14,049)
Carrying Value
2,134,733 (2,148,782 - 14,049)