4. Rouxdy Co. issued $80,000, 6%, 10-year bonds payable at a price of 102 on Jan. 1 Journalize the issuance of the bonds a. b. Journalize the first semi-annual payment and amortization of the discount or premium Ref Date Account Debit Credit 81,600 Cash a. Bonds Payable 80,000 Premium on Bonds Payable 1,600 **Bonds sold for above face value (80,000 x 102%) b. Interest Expense 2,320 Premium on Bonds Payable 80 Cash 2,400 Cash: Bonds will pay 6% annually, so semi-annually is: 80,000 x .06 x .5 2,400 Premium on Bonds Payable: will be amortized (decreased) in equal amounts over the life of the bonds, with each semi-annual interest payment, so: 1,600 20 80 annually will pay interest 20 total times); Interest Expense: Difference between payment and amortization of premium (When bonds are sold at a premium, it's costing less to borrow, hence the Interest Expense is LESS than the payment *(10 year bonds paying semi- 5. Keaubie Co. issued $100,000, 8%, 20-year bonds payable at a price of 92, on Jan. 1 a. Journalize the issuance of the bonds b. Journalize the first semi-annual payment and amortization of the discount or premium. Ref. Debit Date Account Credit Cash 92,000 a. Discount on Bonds Payable 8,000 Bonds Payable 100,000 Bonds were sold for less than face value (92% of face); 100,000 x 92% = 92,000 (cash received) V 4,200 b. Interest Expense Discount on Bonds Payable 200 Cash 4,000 Cash: These bonds will pay interest based on face value and interest rate, so semi-annual interest payment is: 100,000 x .08 x .5 = 4,000 Discount on Bonds Payable: Will be amortized (decreased) over the life of the bonds, with each semi- annual interest payment, so: 8,000 /40 200 *(20 year bonds paying interest semi-annually will make 40 total interest payments) Interest Expense: The interest payment plus the discount on bonds payable equal interest expense. When bonds are sold at a discount, the cost of borrowing increases, hence the interest expense is MORE than the cash payment