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**Premium Amortization** **Scenario:** On the first day of the fiscal year, a company issues a $7,200,000, 10%, 7-year bond that pays semiannual interest of $360,000. The company receives cash of $7,568,023. **Task:** Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. --- **Journal Entries:** - **Interest Expense** Amount: $368,023 (Incorrect entry, marked with an X) - **Premium on Bonds Payable** Amount: $26,287 (Correct entry, marked with a check) - **Cash** Amount: $360,000 (Correct entry, marked with a check) **Feedback:** - Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. **Interface Elements:** - Buttons for navigating previous and next steps and checking work. - An eBook, "Show Me How," and calculator tools are available for assistance.

**Premium Amortization** **Scenario:** On the first day of the fiscal year, a company issues a $7,200,000, 10%, 7-year bond that pays semiannual interest of $360,000. The company receives cash of $7,568,023. **Task:** Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. --- **Journal Entries:** - **Interest Expense** Amount: $368,023 (Incorrect entry, marked with an X) - **Premium on Bonds Payable** Amount: $26,287 (Correct entry, marked with a check) - **Cash** Amount: $360,000 (Correct entry, marked with a check) **Feedback:** - Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. **Interface Elements:** - Buttons for navigating previous and next steps and checking work. - An eBook, "Show Me How," and calculator tools are available for assistance.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Premium Amortization** **Scenario:** On the first day of the fiscal year, a company issues a $7,200,000, 10%, 7-year bond that pays semiannual interest of $360,000. The company receives cash of $7,568,023. **Task:** Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. --- **Journal Entries:** - **Interest Expense** Amount: $368,023 (Incorrect entry, marked with an X) - **Premium on Bonds Payable** Amount: $26,287 (Correct entry, marked with a check) - **Cash** Amount: $360,000 (Correct entry, marked with a check) **Feedback:** - Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. **Interface Elements:** - Buttons for navigating previous and next steps and checking work. - An eBook, "Show Me How," and calculator tools are available for assistance.
Transcribed Image Text:**Premium Amortization** **Scenario:** On the first day of the fiscal year, a company issues a $7,200,000, 10%, 7-year bond that pays semiannual interest of $360,000. The company receives cash of $7,568,023. **Task:** Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. --- **Journal Entries:** - **Interest Expense** Amount: $368,023 (Incorrect entry, marked with an X) - **Premium on Bonds Payable** Amount: $26,287 (Correct entry, marked with a check) - **Cash** Amount: $360,000 (Correct entry, marked with a check) **Feedback:** - Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. **Interface Elements:** - Buttons for navigating previous and next steps and checking work. - An eBook, "Show Me How," and calculator tools are available for assistance.
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