On January 1, 2013, Hackman corporation issues $1million face value 8% bonds dat

Question

On January 1, 2013, Hackman corporation issues $1million face value 8% bonds dated January 1, 2013, for $1,038,000. The bonds pay interest semiannually on June 30 and December 31 and are due December 31,2017. Hackman uses the straight-line amortization method
Record the issurance of the bonds and the first two interest payments. On January 1, 2013, Hackman corporation issues $1million face value 8% bonds dated January 1, 2013, for $1,038,000. The bonds pay interest semiannually on June 30 and December 31 and are due December 31,2017. Hackman uses the straight-line amortization method
Record the issurance of the bonds and the first two interest payments.
Record the issurance of the bonds and the first two interest payments.

Explanation / Answer

Premium on bonds payable = 1038000 - 1000000 = $38000

Number of years for which the bonds were issued = 5 years.

Semi-annual amortization of premium = 38000/5 = $7600

Semiannual interest payment = $1000000 x 8% x 0.5 = $40000

2013

Jan 1

Cash Dr. $1038000

Premium on bonds payable...................... Cr. $38000

Bonds payable.............................................Cr. $1000000

(issue of bond recorded)

June 30

Interest expense....................Dr. $32400

Premium on Bonds payable....Dr. $7600

Cash.................................................Cr. $40000

(Interest expense recorded)

Dec 31

Interest expense....................Dr. $32400

Premium on Bonds payable....Dr. $7600

Cash.................................................Cr. $40000

(Interest expense recorded)

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