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On January 1, the first day of the fiscal year, a company issues a $7,500,000, 8%, five-year bond that pays semiannual interest of $300,000 ($7,500,000 x 8% x ½), receiving cash of $7,811,873.
Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. Refer to the Chart of Accounts for exact wording of account titles.

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Answer and Explanation:

The journal entries are shown below:

1. Cash  Dr  $7,811,873  

  To Bonds payable    $7,500,000

  To Premium on bonds Payable  $311,873  

(Being the bond payable is recorded)

For recording this we debited the cash as it increased the assets and credited the bond payable & premium as it also increased the liabilities

2. Interest expenses $268,812.7  

Premium on Bonds payable  $31,187.3   ($311,873 ÷ 10 years)

   To Cash   $300,000

(being cash paid is recorded)

For recording this we debited the interest expense and premium as it increased the expenses and credited the cash as it decreased the assets

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