JournaldrillInterest with straight-line premium
A journal entry exercise from Journaldrill. Solve it with an account picker and debit and credit fields in your browser, and it is checked the moment you submit.
The task
On January 1, Meadowbrook Hospital Group issued $300,000 of 8-year, 9% bonds at 104. Interest is paid semiannually on June 30 and December 31, and the premium is amortized by the straight-line method. Record the first interest payment on June 30.
What this exercise teaches
The premium is $300,000 x 4% = $12,000, amortized over 16 semiannual periods at $750 each. Cash interest is $300,000 x 9% x 6/12 = $13,500. The premium reduces the cost of borrowing, so interest expense is $13,500 - $750 = $12,750 and Premium on Bonds Payable is debited for $750.
A hint if you get stuck
Cash interest follows the stated rate; amortizing a premium lowers interest expense below the cash paid.
Try it now, free, no account needed
The first 15 tasks on Journaldrill are free. Open it on the practice page, solve it, and get instant feedback with a hint. A free account adds the worked solution; Pro adds timed mode and the certificate.
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