Question
The normal balance of Premium on Bonds Payable is a credit. For Loaning the company $1,081,105, over the 5 year period the investor will get:
The normal balance of Premium on Bonds Payable is a credit.
For Loaning the company $1,081,105, over the 5 year period the investor will get:
Principal $1,000,000
Interest Payments 500,000
Total 1,500,000
Investment 1,081,105
Interest Earned $ 418,895
The Borrowing Company will incur $418,895 of interest expense.
The journal entry to record the interest payment and premium amortization separately is:
GENERAL JOURNAL | Page | ||||||
Date | Description | Post | Debit | Credit | |||
1 | 1 | ||||||
2 | 2 | ||||||
3 | 3 | ||||||
4 | 4 | ||||||
5 | 5 |
OR combined
Date | Description | Post | Debit | Credit | |||
1 | 1 | ||||||
2 | 2 | ||||||
3 | 3 |
Bond Repayment
At the end of the term (Maturity) checks have to be written to the bond holders for their principal repayment.
GENERAL JOURNAL | Page | ||||||
Date | Description | Post | Debit | Credit | |||
1 | 1 | ||||||
2 |
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