**Educational Resource on Bond Journal Entries**In this example, we explore the journal entries required for the issuance of bonds and the recording of the first interest payment. This will provide practical insights into handling bonds in accounting.---**Context:**A company issues $6,400,000 of 4-year, 7% bonds at a market (effective) interest rate of 5%, receiving cash of $6,858,887. Interest is payable semiannually on April 1 and October 1.### a. Recording the Issuance of Bonds (April 1, 20Y1)**Journal Entry:**| Account | Debit | Credit ||------------------------------|-----------|----------|| Cash | 6,858,887 | || Premium on Bonds Payable | | 458,887 || Bonds Payable | | 6,400,000 |**Explanation:**- **Cash** is debited for the amount received from the bond issuance.- **Bonds Payable** is credited at face value.- **Premium on Bonds Payable** is credited to reflect the excess cash received over the bond's face value.**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.---### b. Recording the First Interest Payment (October 1, 20Y1)**Journal Entry:**| Account | Debit | Credit ||------------------------------|--------|----------|| Interest Expense | | || Premium on Bonds Payable | | 224,000 || Cash | | |**Explanation:**- **Interest Expense** and **Cash** details were intended but appear incomplete. Normally, Interest Expense would be debited and Cash credited for the interest payment amount.- **Premium on Bonds Payable** accounts for the amortized portion of the premium over 6 months using the straight-line method, rounded to the nearest dollar.This example illustrates the key components and considerations in journalizing bonds, emphasizing accuracy in interest and premium or discount calculations.

A journal entry is a record of the business transactions in the accounting books of a business. A…

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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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On the first day of the fiscal year, a company issues a $674,000, 7%, 10-year bond that pays semiannual interest of $23,590 ($674,000 x 7% x 1/2), receiving cash of $707,700. Journalize the entry for the first interest payment and amortization of premium using the straight-line method. If an amount box does not require an entry, leave it blank.
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On the first day of the fiscal year, a company issues a $957,000, 7%, 10-year bond that pays semiannual interest of $33,495 ($957,000 x 7% x 1/2), receiving cash of $1,004,900. Journalize the entry to record the first interest payment and amortization of premium using the straight-line method. If an amount box does not require an entry, leave it blank
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