Answer:
Cash 31,951,110 debit
Bonds Payable 30,000,000 credit
Premium on BP 1, 951, 110 credit
--to record issuance of bonds--
interest expense 1,402,444.5 debit
Premium on BP 97,555.5 debit
cash 1,500,000 credit
--to record payment of interest of Dec 31th--
interest expense 1,402,444.5 debit
Premium on BP 97,555.5 debit
cash 1,500,000 credit
--to record payment of interest of June 30th--
Interest expense for 20Y1: 1,402,444.5 dollars
4.- Yes, as the market is willing to accept a higher price o nthe bond as it yields above the market.
Explanation:
proceeds: 31, 951, 110
face value: 30,000,000
premium 1, 951, 110
the premium is the difference between the proceeds and face value.
<u>It will be amortized over 20 payment periods:</u>
1,951,110 / 20 = 97,555.5
this will be subtracted from the interest cash payment to determinate the interest expense:
30,000,000 x 5% = 1,500,000
1,500,000 - 97,555.5 = 1,402,444.5
Under straight line mehtod all entries are the same.
