$500,000 of 6%, 10-year bonds were sold for $510,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to:
A) debit Interest Expense $14,500; debit Premium on bonds payable, $500; credit Cash, $15,000.
B) debit Interest Expense $14,500; credit Cash, $14,500.
C) debit Interest Expense $15,500; credit Premium on bonds payable, $500; credit Cash, $15,000.
D) debit Interest Expense $15,000; credit Cash, $15,000.
A) debit Interest Expense $14,500; debit Premium on bonds payable, $500; credit Cash, $15,000.
Explanation: step 1) determine stated interest for cash amount; step 2) determine amortized premium; step 3) determine interest expense (cash - amortized premium).
Ex: step 1: $500,000 × 6% × 1/2 = $15,000 cash; step 2: $510,000 - $500,000 = $10,000 / 10 years = $1,000 × 1/2 = $500 amortized premium; step 3) $15,000 - $500 = $14,500 interest expense.
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