On June 30, 2017, Bonita Company issued $5,400,000 face value of 13%, 20-year bo

Question

On June 30, 2017, Bonita Company issued $5,400,000 face value of 13%, 20-year bonds at $5,806,239, a yield of 12%. Bonita uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.

Prepare the joumal entries to record the following transactions, (Round answer to 0 decimal places, e.g. 38,548. If no entry Is requlred, select "No Entry" for the account titles and enter 0 for the amounts, Credit account titles are automatically Indented when amount is entered, Do not iIndent manualy) (1) The issuance ef the bonds on June 30, 2017 (2) The payment of interest and the amurtization of the premium on December 31, 2017. (3) The payment of interest and the amortization of the premium on June 30, 2018. (4) The payment of interest and the amortization of the premium on Decemher 3, 2018

Explanation / Answer

3)Total interest paid : 5,400,000*.13*20 = 14,040,000

Total interest expense /cost of borrowing over life of bond = Total Interest paid -premium on bond

           = 14,040,000- 406,239

          = $ 13,633,761

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