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M10-9 Recording the Issuance and Interest Payments of a Bond Issued at a Pr(ith Premium Account) LO10-5 RKO Company sold bonds with a face value of $860,000 for $1,020,213. The bonds have a coupon rate of 9 percent, mature in 8 years, and pay interest annually every December 31. All of the bonds were sold on January 1 of this year. Using a premium account, record the sale of the bonds on January 1 and the payment of interest on December 31 of this year. RKO uses the effective-interest amortization method. Assume an annual market rate of interest of 6 percent. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answer to whole dollars.) View transaction list Journal entry worksheet Record the sale of the bonds on January 1 Note: Enter debits before credits. Date General Journal Debit Credit January 01 Record entry Clear entry View general journal

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Solution:

Date       accounts & explanation          debit           credit

Jan 1                    Cash                        1020213  

                             Bonds payable                                    860000

                   Premium on bonds payable                    160213

               (To record issue bonds payable)  

Dec 31    Interest expense (1020213*6%)    61213  

                    Premium on bonds payable    16187  

                        Cash (860000*9%)                                      77400

                          (To record interest)  

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