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Expert-verified Found in: Page 753 ### Intermediate Accounting (Kieso)

Book edition 16th
Author(s) Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Pages 1552 pages
ISBN 9781118743201

# Assume the bonds in BE14-6 were issued for $644,636 and the effective-interest rate is 6%. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. The total for both the debit and credit sides is$686,636.

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## Meaning of Premium on Bond Payable

Premium on bond payable refers to the cash received over the par value of the issued bond. It is credited in account "premium on bond payable" and amortized over the maturity period.

## Journal Entries

 Journal Entries Date Accounts and Explanation Debit Credit January 1, 2017 Cash $644,636 Bonds Payable$600,000 Premium on Bonds Payable $44,636 July 1, 2017 Interest expenses$19,339.08 Premium on Bonds Payable $1,660.92 Cash$21,000.00 December 31, 2017 Interest expenses $19,289.25 Premium on Bonds Payable$1,710.75 Interest Payable ($600,000 x 7% x 1/2)$21,000

Working:

Premium on bonds payable on January 1= ($644,636-$600,000)= $44,636 Interest expenses on July 1 = (644,636 x 6% x 1/2)=$19,339.08

Premium on bond payable on July 1 ($21,000-19,339.08) =$1,660.92

Interest paid in cash paid on July 1= ($600,000 x 7% x 1/2) =$21,000.

Interest expenses on December 31 = {(644,636 -$1,660.92)x 6% x 1/2} =$19,289.25

Interest payable on December 31, 2017=($600,000 x 7% x 1/2) =$21,000

Premium on bond payable on December 31 ($21,000-19,289.25) =$1,710.75. ### Want to see more solutions like these? 