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26 May, 15:31

A company issues 6%, 7-year bonds with a par value of $280,000 on January 1 at a price of $296,367, when the market rate of interest was 5%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:

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  1. 26 May, 17:42
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    Interest payment per coupon = $8,400

    Explanation:

    Journal entry to record the bond issuance:

    January 1, 202x, bonds are issued

    Dr Cash 296,367

    Cr Bonds payable 280,000

    Cr Premium on bonds payable 16,367

    assuming straight amortization for the bond premium:

    amortization of bond premium per coupon payment = $16,367 / 14 = $1,169.07

    Journal entry to record payment of coupons:

    July 1, 202x

    Dr Interest expense 7,230.93

    Dr Premium on bonds payable 1,169.07

    Cr Cash 8,400
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