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16 January, 22:04

On January 1, a company issues bonds dated January 1 with a par value of $250,000. 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 $260,148. The journal entry to record the first interest payment using straight-line amortization is

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  1. 17 January, 01:21
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    Answer and Explanation:

    Given:

    Sales price of bond = $260,148

    Issue price of bond = $250,000

    Total premium on bond = $260,148 - $250,000

    Total premium on bond = $10,148

    Number of year = 5 year = 5 * 2 semi-annual = 10

    Per period payment = Total premium on bond / 10

    Per period payment = $10,148 / 10 = $1,014.80

    Cash paid = $250,000 * (9%/2) = $11,250

    Journal Entry

    Date Account Title and Explanation Debit Credit

    Interest A/c Dr 10,235.20

    Premium on Bond A/c Dr 1,014.80

    Cash A/c Cr 11,250.00

    Note: interest calculated from balancing figure
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