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On the first day of the fiscal year, a company issues an $8,000,000, 11%, five-year bond that pays semiannual interest of $440,000 ($8,000,000 × 11% × ½), receiving cash of $8,308,869. Journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

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Answer:

The Journal entry for the first interest payment and the amortization of the related bond premium is as follows:

Premium on issue of bond:

[tex]=\frac{8,308,869-8,000,000}{5}\times\frac{6}{12}[/tex]

= $30,887

Interest expense A/c ($440,000 - $30,887)      Dr.    $409,113

Premium on issue of bond A/c                            Dr.    $30,887

To cash ($8,000,000 × 11% × ½)                                                      $440,000

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