Question

The Sarasota Company issued $310,000 of 10% bonds on January 1, 2020. The bonds are due January 1, 2025, with interest payable each July 1 and January 1. The bonds were issued at 96.

Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Sarasota Company records straight-line amortization semiannually.

Answer 1

Straight line amortization means the discount or premium on bonds payable will be amortized each year equally based on number of years bond is outstanding
Journal entry to record bond issued
Date	General Journal	Debit	Credit
1-Jan	Cash (310,000*96%)	$297,600
	Discount on bonds payable (310,000-297,600)	$12,400
	Bonds payable		$310,000
	(To record bonds payable issued)
1-Jul	Interest expense (15,500+1,240)	$16,740
	Discount on bonds payable (12,400/10)		$1,240
	Cash (310,000*5%)		$15,500
	(To record interest on bonds)
31-Dec	Interest expense (15,500+1,240)	$16,740
	Discount on bonds payable (12,400/10)		$1,240
	Cash (310,000*5%)		$15,500
	(To record interest on bonds)