Ask Question
21 February, 11:01

Larkspur, Inc. issues $4.2 million, 5-year, 7% bonds at 103, with interest payable on January 1. The straight-line method is used to amortize bond premium. Prepare the journal entry to record the sale of these bonds on January 1, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

+1
Answers (1)
  1. 21 February, 14:31
    0
    Dr. Cash $4,326,000

    Cr. Premium on Bond $126,000

    Cr. Bond Payable Account $4,200,000

    Explanation:

    The difference between the face value of the bond and the sale value of the bond is known as premium or the discount on the bond. If the face value is higher from the sale value the bond is issued on the discount and if the sale value of the bond is higher than the face value the bond is issued on the premium.

    In this question the bond is issued on premium and the amount of premium is calculated as follow

    Premium on the Bond = Sale value - Face value = ($4,200,000 x 103%) - $4,200,000 = $126,000

    The Premium will be amortized during the life of the bond to maturity and deducted from the interest expense.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Larkspur, Inc. issues $4.2 million, 5-year, 7% bonds at 103, with interest payable on January 1. The straight-line method is used to ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers