The Ascent of Money: Risky Business
1. Why do people buy insurance?

to eliminate the possibilities of risk

Debit: Interest expense $9900

Debit: Premium on bonds payable $540

Credit: Cash $10440

Explanation:

First and foremost, the cash payment will be calculated as:

= $174,000 × 12% × 6/12

= $174,000 × 0.12 × 0.5

= $10440

Interest expenses will be calculated as:

= $180000 × 11% × 6/12

= $180000 × 0.11 × 0.5

= $9900

Therefore, the journal entry to record the first interest payment would be:

Debit: Interest expense $9900

Debit: Premium on bonds payable $540

Credit: Cash $10440