$500,000 of 8%, 10-year bonds were sold for $520,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to:

Question

Quizplus · Accepted Answer

The semiannual interest payments on the bonds can be calculated as follows:

$500,000 x 8% x 6/12 = $20,000

Since the bonds were sold at a premium, the premium on bonds payable will amortize over the life of the bonds. The premium amortization for the first six months can be calculated as follows:

($520,000 - $500,000) / 20 = $1,000

Therefore, the entry to record the June 30 interest payment on the bonds would be to debit Interest Expense for $19,000, debit Premium on bonds payable for $1,000, and credit Cash for $20,000.

$500,000 of 8%, 10-Year Bonds Were Sold for $520,000 on January