Question

The Gorman Group issued $900,000 of 13% bonds on June 30, 2016, for $967,707. The bonds were dated on June 30 and mature on June 30, 2036 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually on December 31 and June 30.

Required:
Complete the below table to record the company's journal entry. (Enter interest rate to 1 decimal place. (i.e. 0.123 should be entered as 12.3).)

Answer 1

Answer:

cash      967,707 debit

  premium on BP      67,707 credit

  Bnds Payable     900,000 credit

interest expense 58062.42  debit

premium on BP 437.58       debit

       cash                     58500 credit

Explanation:

procceds 967,707

face value 900,000

premium on bonds payable 67,707

first interest payment

carrying value x market rate

967,707 x 0.06 = 58062.42

then cash outlay

face valeu x bond rate

900,000 x 0.065 = 58,500

the difference will be the amortization