Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method

Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $3,500,000 of 8-year, 7% bonds at a market (effective) interest rate of 5%, receiving cash of $3,956,924. Interest is payable semiannually on April 1 and October 1.

b. Journalize the entry to record the first interest payment on October 1, 2016, and amortization of bond premium for six months, using the straight-line method. The bond premium amortization is combined with the semiannual interest payment. (Round to the nearest dollar.) For a compound transaction, if an amount box does not require an entry, leave it blank.

Interest Expense Premium on Bonds Payable Cash 122,500