Answer:
August 1, 2019
Dr. Cash $625,400
Cr. Premium on Bond $25,400
Cr. Bond Payable $600,000
August 31, 2019
Dr. Interest Expense $16,941.67
Dr. Premium on Bond $1,058.33
Cr. Cash __________$18,000
September 30, 2019
Dr. Interest Expense $2,823.61
Dr. Premium on Bond $176.39
Cr. Cash __________$3,000
Explanation:
August 1, 2019
As the Bond was issued on August 1, 2019, So the first entry will be made at the issuance
Issuance of Bond = Total authorized x 3/4 = $800,000 x 3/4 = $600,000
Cash receipt = Face value + Premium on Bond = $600,000 + $25,400 = $625,400
August 31, 2019
As interest is paid on this date.
Interst payment = Face value x Coupon rate = $600,000 x 6% x 6/12 = $18,000
Amortization of Bond Premium ( Straight line ) = Premium on Bond / ( Years to maturity x Coupon payment period per year ) = $25,400 / ( 12 years x 2 periods per year ) = $1,058.33
September 30, 2019
On this date interest of one month is accrued which needs to be recorded.
Interest payable = 600,000 x 6% x 1/12 = $3,000
Amortization of Bond Premium ( Straight line ) = ( 25,400 / 24 ) / 6 = $176.39
