Question

On January 1, 2020, Morgan Enterprises issued 8%, 20-year bonds with a face amount of $5,000,000 at 101. Interest is payable annually on January 1. Prepare the entries to record the issuance of the bonds and the first annual interest accrual and amortization assuming that the company uses straight-line amortization

Answer 1

Step-by-step explanation:

The journal entries are shown below:

1. Cash A/c Dr $ 5,050,000

To Bonds payable A/c $5,000,000

To Premium on Bonds payable A/c $50,000

(Being bond is issued)

2. Interest Expense A/c Dr $3,97,500

Premium on bonds payable A/c $2,500 ($50,000 ÷ 20)

To Interest payable A/c $400,000 ($5,000,000 × 8%)

(Being the interest expense is recorded)