On April 1, 2017, an entity issued bonds with face amount of Php5,000,000 at Php5,228,000 plus accrued interest.

The
bonds are dated January 1, 2017, mature in five years, and pay 12% interest semi-annually every July 1 and January 1.

Date Account Title/s Debit Credit

04/01/2017 Cash 5,378,000
Bonds Payable 5,000,000
Premium on Bonds Payable 228,000
Interest Expense/Interest Payable 150,000

Issue price 5,228,000

Add: Accrued interest (5m x 12% x
3/12), from the date of bond to the
date of issuance 150,000
Total cash received 5,378,000

07/01/2017 Interest Expense 288,000

Premium on Bonds Payable 12,000
Cash 300,000
OR
Interest Payable 150,000
Interest Expense 138,000
Premium on Bonds Payable 12,000
Cash 300,000

Note: Either method, you should end up with the same interest
expense of Php 138,000.

Original term 60 months

Less: Months expired 3 months
Equals: Remaining term 57 months

Premium Php 228,000

Divide by remaining term 57 months
Monthly amortization Php 4,000

On July 1, 2017, amortization of premium must be recorded for 3 months (from date of issuance, April 1, to
first interest payment date, July 1)

31/12/2017 Interest Expense 276,000

Premium on Bonds Payable 24,000
Interest Payable 300,000

On December 31, 2017, interest must be accrued and amortization of premium must be recorded for 6 months
(from last interest payment date, July 1, to year-end, December 31).