Premium Amortization On January 1, the first day of the fiscal year, a company issues an $2,250,000, 9%, five-year bond that pays semiannual interest of $101,250 ($2,250,000 x 9% x ½), receiving cash of $2,379,570. Required: Journalize the first interest payment and the amortization of the related bond premium. Refer to the chart of accounts for the exact wording of the account titles. CHART OF ACCOUNTSGeneral Ledger ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 126 Interest Receivable 127 Notes Receivable 131 Merchandise Inventory 141 Office Supplies 191 Land 194 Office Equipment 195 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Salaries Payable 231 Sales Tax Payable 232 Interest Payable 241 Notes Payable 251 Bonds Payable 252 Discount on Bonds Payable 253 Premium on Bonds Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 351 Cash Dividends 352 Stock Dividends REVENUE 410 Sales 610 Interest Revenue 611 Gain on Redemption of Bonds EXPENSES 510 Cost of Merchandise Sold 515 Credit Card Expense 516 Cash Short and Over 522 Office Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 541 Bad Debt Expense 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 711 Loss on Redemption of Bonds JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 2 3

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

On January 1, the first day of the fiscal year, a company issues an $2,250,000, 9%, five-year bond that pays semiannual interest of $101,250 ($2,250,000 x 9% x ½), receiving cash of $2,379,570.

Required:

Journalize the first interest payment and the amortization of the related bond premium. Refer to the chart of accounts for the exact wording of the account titles.

CHART OF ACCOUNTSGeneral Ledger

	ASSETS
110	Cash
111	Petty Cash
121	Accounts Receivable
122	Allowance for Doubtful Accounts
126	Interest Receivable
127	Notes Receivable
131	Merchandise Inventory
141	Office Supplies
191	Land
194	Office Equipment
195	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Salaries Payable
231	Sales Tax Payable
232	Interest Payable
241	Notes Payable
251	Bonds Payable
252	Discount on Bonds Payable
253	Premium on Bonds Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
315	Treasury Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
351	Cash Dividends
352	Stock Dividends

	REVENUE
410	Sales
610	Interest Revenue
611	Gain on Redemption of Bonds

	EXPENSES
510	Cost of Merchandise Sold
515	Credit Card Expense
516	Cash Short and Over
522	Office Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
535	Rent Expense
536	Insurance Expense
537	Office Supplies Expense
541	Bad Debt Expense
562	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense
711	Loss on Redemption of Bonds

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3

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