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On january 1, 2017, aumont company sold 12% bonds having a maturity value of $500,000 for $537,907.37, which provides the bondholders with a 10% yield. the bonds are dated january 1, 2017, and mature january 1, 2022, with interest payable december 31 of each year. aumont company allocates interest and unamortized discount or premium on the effective-interest basis.

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Answer:

The journal entry for recording the issuance of the bonds would be:

January 1, 2017, issuance of bonds

  • Dr Cash account 537,907.37
  • Cr Bonds Payable account 500,000
  • Cr Premium on Bonds Payable account 37,907.37

The journal entry for recording the first coupon payment would be:

December 31, 2017, bonds' coupon expenses

  • Dr Bonds Interest Expense account 53,790.74
  • Dr Premium on Bonds Payable account 6,209.26
  • Cr Cash account 60,000

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