The Great Lakes Company issues 509000 of 12 10minusyear bon

The Great Lakes Company issues $ 509,000 of 12?%, 10minusyear bonds at 106 on March? 31, 2018. The bond pays interest on March 31 and September 30. Assume that the company uses the straightminusline method for amortization. The journal entry to record the first interest payment on September? 30, 2018 includes a? ________. (Round your intermediate answers to the nearest? dollar.)

Solution

Solution:

Semi Annual Coupon Interest = Face Value 509,000 x Coupon Rate 12% * 1/2 Half Yearly = $30,540

Issue Price of the bonds = Face Value $509,000 * 106% = $539,540

issue Price of the bonds are higher than face value, it means bonds are issued at premium.

Premium on Bonds Payable = Issue Price $539,540 - Face Value $509,000 = $30,540

This Premium is amortized over the life of bond. On each interest payment some fixed portion under straight line method is amortized.

Semi Annual Amortization of Premium = Total Premium $30,540 / Semi Annual Period to Maturity 10*2

= $1,527

Journal Entry to record the first interest payment on Sept 30, 2018 will be as follows:

Date

General Journal

Debit

Credit

Sept.30, 2018

Interest Expense (Bal figure)

$29,013

Premium on Bonds Payable (Amortized)

$1,527

Interest Payable or Cash

$30,540

(To record first semi annual interest payment)

Note --- Since the options are not written in the question, you can select the correct option from the above journal entry or provide me the options so that I can submit. The Journal Entry on Sept 30, 2018 will be as above..

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you