Response and Clarification:a. The journal entry is displayed below:-
1. Cash Dr, $32,433,150
To Premium on Bonds Payable $2,433,150
To Bonds Payable $30,000,000
(Sale of bonds is recorded)
2. Interest Expense Dr, $1,297,326
($32,433,150 × 4%)
Premium on Bonds Payable Dr, $202,674
To Cash $1,500,000
($30,000,000 × 5%)
(First semiannual interest payment, including premium amortization is recorded)
3. Interest Expense Dr, $1,289,219
($32,433,150 - $202,674) × 4%
Premium on Bonds Payable Dr, $210,781
To Cash $1,500,000
(Second semiannual interest payment, including premium amortization is recorded)
($30,000,000 × 5%)
b. Total annual interest paid = $3,000,000
Less: Premium amortized = $364,094
($202,674 + $161,420)
Interest expense for the first year = $2,635,906
