$500,000 of 8%,10-year bonds were sold for $530,000 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 payment is calculated as follows: 
$500,000 x 8% x 6/12 = $20,000.

Since the bonds were sold at a premium, the premium amount is amortized over the life of the bonds. Each semiannual interest payment includes a portion of interest expense ($20,000) and a portion of the premium amortization ($1,500/2 = $750).

Therefore, the entry to record the June 30 interest payment would be to debit Interest Expense $18,500 ($20,000 - $750), debit Premium on bonds payable $1,500, and credit Cash $20,000.

$500,000 of 8%,10-Year Bonds Were Sold for $530,000 on January