Chapter 14, Problem 4APSA

To determine

Issue of bond at premium:

When the coupon rate or contract rate of a bond is higher than the market interest rate, the bond is being issued at premium. If the bond is issued at premium, the selling price of the bond will be higher than the face value of the bond.

Straight Line Method Amortization of premium:

Under straight line amortization method, a specific amount of premium is amortized each period till its maturity period. The period ending amortization amount is computed by dividing the total premium by the number of periods in maturity of the bonds payable.

:

1. Computation of total bond interest expense over the bond’s life.

2. Prepare a straight-line amortization table for the bond’s life.

3. Prepare journal entries to record the first two interest payments.