## Answers

a) Journal entry

Date | account and explanation | Debit | Credit |

Jan 1 | Cash (3250000*1.03) | 3347500 | |

Bonds payable | 3250000 | ||

Premium on bonds payable | 97500 |

b) Amortization table

Annual interest period | Interest to be paid | Interest expense to be recorded | Premium amortization | Unamortized premium | Carrying value |

Issue date | 97500 | 3347500 | |||

1 | 3250000*12% = 390000 | 380250 | 97500/10 = 9750 | 87750 | 3337750 |

2 | 390000 | 380250 | 9750 | 78000 | 3328000 |

3 | 390000 | 380250 | 9750 | 68250 | 3318250 |

4 | 390000 | 380250 | 9750 | 58500 | 3308500 |

Journal entry

Date | account and explanation | Debit | Credit |

Dec 31 | Interest expense | 380250 | |

Premium on bonds payable | 9750 | ||

Interest payable | 390000 | ||

Dec 31 | Interest expense | 380250 | |

Premium on bonds payable | 9750 | ||

Interest payable | 390000 |

Balance sheet

as on December 31,2021

Current liabilities | ||

Interest payable | 390000 | |

Long term liabilities | ||

Bonds payable | 3250000 | |

Add: | ||

Premium on bonds payable | 78000 | 3328000 |

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