The journal entry to record the interest expense of a bond payable issued at a premium would include a:
A)debit to Cash
B)credit to Bonds Payable
C)credit to Interest Expense
D)debit to Premium on Bonds Payable

Question

Quizplus · Accepted Answer

When a bond is issued at a premium, it means that the bond is sold at a price higher than its face value. As a result, the bond issuer receives more cash than the face value of the bond. The difference between the cash received and the face value is known as the premium on bonds payable.

When calculating the interest expense for a bond issued at a premium, the effective interest method is used. This method calculates the interest expense by multiplying the carrying value of the bond (which is the face value plus the premium or minus the discount) by the effective interest rate.

To record the interest expense, the following journal entry is made:

Debit Interest Expense
Credit Cash
Credit Premium on Bonds Payable

Therefore, the correct answer is D, a debit to Premium on Bonds Payable.

The Journal Entry to Record the Interest Expense of a Bond