On March 1, 2011, Speedy Freight Company sold $200,000 of its 9.5 percent, 20-year bonds at 106. The semiannual interest payment dates are March 1 and September 1. The 1market interest rate is 8.9 percent. The firm’s fiscal year ends August 31.
Prepare journal entries to record the sale of the bonds on March 1, the accrual of interest and amortization of premium on August 31, and the first interest payment on September 1. Use the effective interest method to amortize the premium.