On January 1,2013, Diab Services issued $140,000 of 4-year bonds with a stated r

Question

On January 1,2013, Diab Services issued $140,000 of 4-year bonds with a stated rate of 9%. The market rate at time of issue was 8%, so the bonds were issued with a premium and sold for $144,758. Diab uses the effective-interest method to amortize bond premium. Semiannual interest payments are made on June 30 and December 31 of each year. Which of the following is the correct journal entry to record the first interest payment? Cash 6300 Premium on bonds payable 700 Interest expense 5600 Interest expense 5790 Premium on bonds payable 510 cash 6300 Interest expense 5600 Discount on bonds payable 700 Cash 6300 Interest expense 5600 Cash 5600

Explanation / Answer

B Journal Entries Particulars Dr Amt Cr Amt Interest Expense Dr               5,790.00 Premium on Bonds Payable                   510.00 To Cash             6,300.00 Intt payment = 140,000*9%*1/2= 6300 Intt Exp =144758 *8%/2 = 5790 Premium = 6300 - 5790 = 510

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