Answer :
Sure, let's go through the steps to record the necessary journal entries:
### Step 1: Record the bond issue on January 1, 2024.
When bonds are issued, the entry involves debiting the Cash account for the amount received and crediting the Bonds Payable account for the face value of the bonds. Since these bonds are issued at a premium (the issue price is higher than the face value), the difference is credited to Premium on Bonds Payable.
Date: January 1, 2024
```
General Journal Debit Credit
-------------------------------------------------------------------------
Cash [tex]$322,317 Bonds Payable $[/tex]300,000
Premium on Bonds Payable [tex]$22,317 ``` ### Step 2: Record the first semiannual interest payment on June 30, 2024. For the first interest payment, we need to account for the interest expense based on the market rate and the actual cash interest payment based on the bond's coupon rate. The difference between the two represents the amortization of the premium. Interest Expense Calculation: \[ \text{Interest Expense} = \text{Issue Price} \times \left(\frac{\text{Market Rate}}{2}\right) \] \[ \text{Interest Expense} = 322,317 \times \left(\frac{6\%}{2}\right) \] \[ \text{Interest Expense} = 322,317 \times 0.03 \] \[ \text{Interest Expense} = 9,669.51 \] Cash Interest Payment Calculation: \[ \text{Cash Interest Paid} = \text{Principal} \times \left(\frac{\text{Coupon Rate}}{2}\right) \] \[ \text{Cash Interest Paid} = 300,000 \times \left(\frac{7\%}{2}\right) \] \[ \text{Cash Interest Paid} = 300,000 \times 0.035 \] \[ \text{Cash Interest Paid} = 10,500 \] Premium Amortization Calculation: \[ \text{Premium Amortization} = \text{Cash Interest Paid} - \text{Interest Expense} \] \[ \text{Premium Amortization} = 10,500 - 9,669.51 \] \[ \text{Premium Amortization} = 830.49 \] Date: June 30, 2024 ``` General Journal Debit Credit ------------------------------------------------------------------------- Interest Expense $[/tex]9,669.51
Premium on Bonds Payable [tex]$830.49 Cash $[/tex]10,500
```
### Step 3: Record the second semiannual interest payment on December 31, 2024.
Adjust Issue Price for Premium Amortization:
[tex]\[ \text{Adjusted Issue Price} = \text{Initial Issue Price} - \text{First Premium Amortization} \][/tex]
[tex]\[ \text{Adjusted Issue Price} = 322,317 - 830.49 \][/tex]
[tex]\[ \text{Adjusted Issue Price} = 321,486.51 \][/tex]
Interest Expense Calculation:
[tex]\[ \text{Interest Expense} = \text{Adjusted Issue Price} \times \left(\frac{\text{Market Rate}}{2}\right) \][/tex]
[tex]\[ \text{Interest Expense} = 321,486.51 \times 0.03 \][/tex]
[tex]\[ \text{Interest Expense} = 9,644.60 \][/tex]
Cash Interest Payment Calculation (remains the same):
[tex]\[ \text{Cash Interest Paid} = 10,500 \][/tex]
Premium Amortization Calculation:
[tex]\[ \text{Premium Amortization} = \text{Cash Interest Paid} - \text{Interest Expense} \][/tex]
[tex]\[ \text{Premium Amortization} = 10,500 - 9,644.60 \][/tex]
[tex]\[ \text{Premium Amortization} = 855.40 \][/tex]
Date: December 31, 2024
```
General Journal Debit Credit
-------------------------------------------------------------------------
Interest Expense [tex]$9,644.60 Premium on Bonds Payable $[/tex]855.40
Cash $10,500
```
This completes the necessary journal entries for recording the bond issue on January 1, 2024, and the first two semiannual interest payments on June 30, 2024, and December 31, 2024.
### Step 1: Record the bond issue on January 1, 2024.
When bonds are issued, the entry involves debiting the Cash account for the amount received and crediting the Bonds Payable account for the face value of the bonds. Since these bonds are issued at a premium (the issue price is higher than the face value), the difference is credited to Premium on Bonds Payable.
Date: January 1, 2024
```
General Journal Debit Credit
-------------------------------------------------------------------------
Cash [tex]$322,317 Bonds Payable $[/tex]300,000
Premium on Bonds Payable [tex]$22,317 ``` ### Step 2: Record the first semiannual interest payment on June 30, 2024. For the first interest payment, we need to account for the interest expense based on the market rate and the actual cash interest payment based on the bond's coupon rate. The difference between the two represents the amortization of the premium. Interest Expense Calculation: \[ \text{Interest Expense} = \text{Issue Price} \times \left(\frac{\text{Market Rate}}{2}\right) \] \[ \text{Interest Expense} = 322,317 \times \left(\frac{6\%}{2}\right) \] \[ \text{Interest Expense} = 322,317 \times 0.03 \] \[ \text{Interest Expense} = 9,669.51 \] Cash Interest Payment Calculation: \[ \text{Cash Interest Paid} = \text{Principal} \times \left(\frac{\text{Coupon Rate}}{2}\right) \] \[ \text{Cash Interest Paid} = 300,000 \times \left(\frac{7\%}{2}\right) \] \[ \text{Cash Interest Paid} = 300,000 \times 0.035 \] \[ \text{Cash Interest Paid} = 10,500 \] Premium Amortization Calculation: \[ \text{Premium Amortization} = \text{Cash Interest Paid} - \text{Interest Expense} \] \[ \text{Premium Amortization} = 10,500 - 9,669.51 \] \[ \text{Premium Amortization} = 830.49 \] Date: June 30, 2024 ``` General Journal Debit Credit ------------------------------------------------------------------------- Interest Expense $[/tex]9,669.51
Premium on Bonds Payable [tex]$830.49 Cash $[/tex]10,500
```
### Step 3: Record the second semiannual interest payment on December 31, 2024.
Adjust Issue Price for Premium Amortization:
[tex]\[ \text{Adjusted Issue Price} = \text{Initial Issue Price} - \text{First Premium Amortization} \][/tex]
[tex]\[ \text{Adjusted Issue Price} = 322,317 - 830.49 \][/tex]
[tex]\[ \text{Adjusted Issue Price} = 321,486.51 \][/tex]
Interest Expense Calculation:
[tex]\[ \text{Interest Expense} = \text{Adjusted Issue Price} \times \left(\frac{\text{Market Rate}}{2}\right) \][/tex]
[tex]\[ \text{Interest Expense} = 321,486.51 \times 0.03 \][/tex]
[tex]\[ \text{Interest Expense} = 9,644.60 \][/tex]
Cash Interest Payment Calculation (remains the same):
[tex]\[ \text{Cash Interest Paid} = 10,500 \][/tex]
Premium Amortization Calculation:
[tex]\[ \text{Premium Amortization} = \text{Cash Interest Paid} - \text{Interest Expense} \][/tex]
[tex]\[ \text{Premium Amortization} = 10,500 - 9,644.60 \][/tex]
[tex]\[ \text{Premium Amortization} = 855.40 \][/tex]
Date: December 31, 2024
```
General Journal Debit Credit
-------------------------------------------------------------------------
Interest Expense [tex]$9,644.60 Premium on Bonds Payable $[/tex]855.40
Cash $10,500
```
This completes the necessary journal entries for recording the bond issue on January 1, 2024, and the first two semiannual interest payments on June 30, 2024, and December 31, 2024.
