On January 1, a company issues bonds dated January 1 with a par value of $270,00
ID: 2545936 • Letter: O
Question
On January 1, a company issues bonds dated January 1 with a par value of $270,000. The bonds mature in 5 years. The contract rate is 11%, and interest is paid semiannually on June 30 and December 31, The market rate is 10% and the bonds are sold for $280,420. The journal entry to record the first interest payment using straight-line amortization is Debit Bond Interest Expense $13,808.00; debit Premium on Bonds Payable $1,042.00; credit Cash $14,850.00. O Debit Bond Interest Expense $15,892.00; credit Discount on Bonds Payable $1,042.00; credit Cash $14,850.00. O Debit Bond Interest Expense $15,892.00; credit Premium on Bonds Payable $1,042.00; credit Cash $14,850.0o Debit Interest Payable $14,850.00; credit Cash $14,850.00. Debit Bond Interest Expense $13,808.00; debit Discount on Bonds Payable $1,042.00; credit Cash $14.850.00.Explanation / Answer
Cash interest paid: $270,000 x 0.11 x 1/2 year = $14,850
Premium amortized: ($280,420 $270,000)/10 = $1,042
Interest expense: $14,850 $1,042 = $13,808
Account Titles Debit Credit Bond Interest Expenses $13,808 Premium on Bonds Payable $1,042 Cash $14,850