Question

Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued $12,000,000 of 5-year, 11% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 12%, resulting in Ebert receiving cash of $11,558,459. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. 11,558,459 Cash Discount on Bonds Payable 441,541 Bonds Payable 12,000,000 Feedback Check My Work Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. 2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank Interest Expense Discount on Bonds Payable Cash 660,000
On the first day of its fiscal year, Ebert Company issued $12,000,000 of 5-year, 11% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 12%, resulting in Ebert receiving cash of $11,558,459. The company uses the interest method.

Answer 1

a
1	Cash	11558459
	Discount on Bonds payable	441541
	Bonds payable		12000000
2	Interest expense	693508		=11558459*12%/2
	Discount on Bonds payable		33508
	Cash		660000	=12000000*11%/2
3	Interest expense	695518		=(11558459+33508)*12%/2
	Discount on Bonds payable		35518
	Cash		660000	=12000000*11%/2
b
	Annual interest paid	1320000		=660000*2
	Discount amortized	69026		=33508+35518
	Interest expense for first year	1389026