On January 1 a company issues bonds dated January 1 with a p

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the first interest payment using the effective interest method of amortization is:

Debit Interest Expense $12,487.08; debit Premium on Bonds Payable $1,012.92; credit Cash $13,500.00.

Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.

Debit Bond Interest Expense $12,487.08; debit Discount on Bonds Payable $1,012.92; credit Cash $13,500.00.

Debit Interest Payable $13,500; credit Cash $13,500.00.

Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.

Solution

Journal entry Date Account titles & Explanations Debit Credit 30-Jun interest expense (312177*8%*1/2) 12487.08 premium on bonds 1012.92 Cash (300,000*9%*1/2) 13500.00 Hence option a ) is the correct answer Debit interest expense 12,487.08 ; Debit premium on bonds payable 1,012.92 ; credit Cash $13,500