On the first day of the fiscal year, a company issues an $2,750,000, 8%, five-ye

Question

On the first day of the fiscal year, a company issues an $2,750,000, 8%, five-year bond that pays semiannual interest of $110,000 ($2,750,000 x 8% x ½), receiving cash of $2,938,110. Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. Refer to the Chart of Accounts for exact wording of account titles.

Chart of Accounts CHART OF ACCOUNTS General Ledger ASSETS REVENUE 410 Sales 610 Interest Revenue 611 Gain on Redemption of Bonds 110 Cash 111 Petty Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 126 Interest Receivable 127 Notes Receivable 131 Merchandise Inventory 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 191 Land 194 Office Equipment 195 Accumulated Depreciation-Office Equipment

Explanation / Answer

General Journal Debit Credit Interest Expense $91,189 Premium on Bonds Payable($188,110 / 5) × 1/2 $18,811 Bonds Payable $110,000

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