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Chapter 2.92® - Accruing Bond Interest Expense - Journal Entry to Accrue Bond Interest Payable & Amortization of Bond Premium

If a bond interest payment period does not coincide with the issuing company’s accounting period, an accounting adjusting entry must be done to recognize bond interest expense accruing since the most recent interest payment. For instance assume from the effective interest example above that Backstreet Corp. has an accounting year-end of April 30th 2009. Therefore in column B we would have the following calculation:

 Accrue Bond Interest Expense up to April 30th, 2009 = \$13,768.30 x 4/12 = \$4,589.43 Accrue Bond Premium Amortization = \$1,231.70 x 4/12 = \$410.60 The resulting interest payable is \$5000 + \$410.60 = \$5,410.60

Following is the accounting journal entry:

 April 30th, 2009 Account Name Debit Credit Dr. Bond Interest Expense \$4,589.43 Dr. Premium on Bonds Payable \$410.60 Cr. Interest Payable \$5,000.03 Entry to record accrual of bond interest payable by allocating \$4,589.43 to bond interest expense and amortizing the premium on bonds payable up to April 30th, 2009 (therefore 4 months in to 2009).

Similar journal entries to the above will be made on April 30th year-end throughout the three year life of the bonds.

On December 31st, 2009 when the actual \$15,000 cash interest is paid out, a journal entry is done to recognize bond interest expense and amortization from May through December for a total of 8 months. This journal entry also must eliminate the interest payable liability we booked on April 30th, 2009 adjusting entry. The following is the entry made:

 December 31st, 2009 Account Name Debit Credit Dr. Interest Payable \$5,000.03 Dr. Bond Interest Expense (\$13,768.30 x 8/12) \$9,178.87 Dr. Premium on Bonds Payable (\$1,231.70 x 8/12) \$821.13 Cr. Cash \$15,000.03 Entry to record eight months’ interest and amortization on bond payable and eliminate the accrued interest liability recorded on April 30th, 2009-07-16