On the first day of the fiscal year, a company issues a $4,000,000, 6%, five-year bond that pays semiannual interest of $120,000 ($4,000,000 x 6% x 1/2), receiving cash of $4,175,041.
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.
Account Debit Credit
Bonds Issued for a Premium
Bonds issued by a company can be issued at a price higher than its face amount (i.e. issued at a premium). The amount of premium is required to be amortized over the life of the bond either by straight line method or by effective interest method. Under straight line method the amount of premium required to be amortized at every interest date is calculated by dividing the total premium amount by the number of interest periods.