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7 November, 13:59

Presented below is a partial amortization schedule for Premium Foods:

Period Issue Date Cash Paid Interest Expense Decrease in Carrying Value Carrying Value

$85,959

1 $2,900 $2,586 $314 85,645

2 2,900 2,578 322 85,323

(1) Record the bond issue assuming the face value of bonds payable is $76,000.

(2) Record the first interest payment.

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  1. 7 November, 14:21
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    Dr cash $85,959

    Cr bonds payable $76,000

    Cr premium on bonds payable $9,959

    Dr interest expense $2,586

    Dr premium on bonds payable $314

    Cr cash $2,900

    Explanation:

    The cash realized from bond issuance is $85,959, which means that the bonds were issued at a premium $9959 ($85,959-$76,000).

    In effecting the issuance in the books of accounts, cash account would be debited with $85,959 while bonds payable and premium on bonds payable are credited with $76,000 and $9,959 respectively.

    The interest payment was $2,900, credited to cash and $2,586 and $314 are debited to interest expense and premium on bonds payable respectively.
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