Question

ellis company issues 8.0%, five-year bonds dated january 1, 2027, with a $530,000 par value. the bonds pay interest on june 30 and december 31 and are issued at a price of $575,210. the annual market rate is 6% on the issue date. complete this question by entering your answers in the tabs below. required 1 required 2 required 3 prepare the journal entries to record the first two interest payments. view transaction list journal entry worksheet 1 2 record the first interest payment on june 30. note: enter debits before credits. date general journal debit credit june 30 record entry clear view general journal

Explanation:

Step1: Calculate cash interest payment

Semi-annual cash interest = $530,000 \times \frac{8\%}{2} = \$21,200$

Step2: Calculate first period interest expense

Interest expense (June 30) = $575,210 \times \frac{6\%}{2} = \$17,256.30$

Step3: Calculate first premium amortization

Premium amortization (June 30) = $21,200 - 17,256.30 = \$3,943.70$

Step4: Update bond carrying value

Carrying value (June 30) = $575,210 - 3,943.70 = \$571,266.30$

Step5: Calculate second period interest expense

Interest expense (Dec 31) = $571,266.30 \times \frac{6\%}{2} = \$17,137.99$

Step6: Calculate second premium amortization

Premium amortization (Dec 31) = $21,200 - 17,137.99 = \$4,062.01$

Answer:

Journal Entry for June 30 (First Interest Payment):

Date	General Journal	Debit	Credit
	Premium on Bonds Payable	$3,943.70
	    Cash		$21,200.00

Journal Entry for December 31 (Second Interest Payment):

Date	General Journal	Debit	Credit
	Premium on Bonds Payable	$4,062.01
	    Cash		$21,200.00