Trego Company issued, on December 31, 2015, $1,000,000 face value, 4%, 5-year bo

Question

Trego Company issued, on December 31, 2015, $1,000,000 face value, 4%, 5-year bonds. Interest will be paid semiannually each June 30 and December 31. The bonds sold at a price of 102; Trego uses the straight-line method of amortizing bond discount or premium.

1. Refer to the information above. Trego's entry at June 30, 2016, to record the first semiannual payment of interest and amortization of discount/premium on the bonds includes a:

1. Credit to Cash of $22,000.

2. Debit to Bond Interest Expense of $20,000.

3. Debit to Bond Interest Expense of $18,000.

4. Credit to Premium on Bonds Payable of $2,000.

Explanation / Answer

Answer.3. Debit to Bond Interest Expense of $18,000 Premium on Issue of Bonds 20,000 Amort. Of premium under Straight Line Method per period (20000 / 10) 2000 Journal Entry on Payment of Interest - June 30 2016 Interest Exp.                                          Dr.              18,000 Prem. On Issus of Bonds                   Dr.                2,000    To Cash - 1,000,000 X 2%                20,000

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