Question

On July​ 1, 2025​, Leanne Nguyen Services issued $ 72000 of 15​% bonds that mature in ten years. They were issued at 105. The bonds pay semiannual interest payments on June 30 and December 31 of each year using the​ straight-line amortization method. Prepare the journal entries for the issuance of the bonds on July​ 1, 2025​, and for the first interest payment on December​ 31, 2025. ​(Record debits​ first, then credits. Exclude explanations from journal​ entries.)
First Journalize the issuance of the bonds on July​ 1, 2025

Answer 1

are you sure? the debits are not the same amount as the credits

Answer 2

Yes, Journalize the semiannual interest payment and amortization of the bond discount on December​ 31, 2025.

Answer 3

Here are the journal entries for the issuance of the bonds on July 1, 2025:

**July 1, 2025**

```
Debit: Cash $75,600
Debit: Discount on Bonds Payable $3,600
Credit: Bonds Payable $72,000
```

**Note:**
- Cash received = $72,000 * 1.05 = $75,600 (issued at 105)
- Discount on Bonds Payable = $3,600 (the difference between cash received and face value: $75,600 - $72,000)

Answer 4

I apologize for the mistake. You're correct that the debits and credits in a journal entry must balance. Here's the corrected journal entry for the issuance of the bonds on July 1, 2025:

### July 1, 2025

```
Debit: Cash $75,600
Credit: Bonds Payable $72,000
Credit: Premium on Bonds Payable $3,600
```

### Explanation:
- **Cash:** The amount received from issuing the bonds is $72,000 * 1.05 = $75,600.
- **Bonds Payable:** This is the face value of the bonds, which is $72,000.
- **Premium on Bonds Payable:** The premium on the bonds is the difference between the cash received and the face value, calculated as $75,600 - $72,000 = $3,600.

Thank you for your understanding, and I appreciate your patience. Now let's move on to the first interest payment on December 31, 2025. Would you like to proceed with that?

Answer 5

Certainly! For the first semiannual interest payment on December 31, 2025, we also need to consider the amortization of the bond premium. Here are the calculations and the subsequent journal entry:

### Calculate the Semiannual Interest Payment:
- **Face Value of Bonds:** $72,000
- **Stated Interest Rate**: 15%
- **Semiannual Interest Payment**:
\[
\text{Semiannual Interest} = \text{Face Value} \times \left( \frac{\text{Stated Rate}}{2} \right)
\]
\[
= 72,000 \times 0.075 = 5,400
\]

### Amortization of the Premium:
Since there is a premium of $3,600 over the life of the bond (10 years or 20 periods), the semiannual amortization will be:
\[
\text{Amortization of Premium} = \frac{3,600}{20} = 180
\]

### The Journal Entry for December 31, 2025:

Now we can record the semiannual interest payment and the amortization of the premium.

```
Debit: Interest Expense $5,220
Debit: Premium on Bonds Payable $180
Credit: Cash $5,400
```

### Explanation:
- **Interest Expense:** This is the cash interest paid minus the amortization of the premium:
\[
\text{Interest Expense} = \text{Semiannual Interest} - \text{Amortization of Premium} = 5,400 - 180 = 5,220
\]

- **Premium on Bonds Payable:** This reflects the amortization of the bond premium.

- **Cash:** The total cash payment for interest is $5,400.

This entry accurately reflects the interest payment and the impact of the bond premium on interest expense. Let me know if you need any further assistance!