Question

Discount on bonds payable $47,500 *P15-7B Somonauk Company sold $6,000,000, 9 % , 20- year bonds on January 1, 2012. The bonds were dated January 1, 2012, and pay interest on January 1 and July 1. Somonauk Company uses the straight-line method to amortize bond premium or discount. The bonds were sold at 96. Assume no interest is accrued on June 30. Instructions (a) Prepare the journal entry to record the issuance of the bonds on January 1, 2012 (b) Prepare a bond discount amortization schedule for the first 4 interest periods (c) Prepare the journal entries for interest and the amortization of the discount in 2012 and 2013. (d) Show the balance sheet presentation of the bond liability at December 31, 2013.

Answer 1

a)	Date	Account title & Explanations					Debit	Credit
	1/1/2012	Cash					5760000
		discount on bonds payable					240000
		Bonds payable						6,000,000
b)		Amortization Schedule
	Date	Cash	interest	Discount	Carrying
		paid	expense	amortized	value
	1/1/2012				5760000
	7/1/2012	270000	276000	6000	5766000
	1/1/2013	270000	276000	6000	5772000
	7/1/2013	270000	276000	6000	5778000
	1/1/2014	270000	276000	6000	5784000
c)	Date	Account title & Explanations					Debit	Credit
	7/1/2012	interest expense					276000
		Discount on bonds payable						6000
		Cash						270000
	12/31/2012	interest expense					276000
		Discount on bonds payable						6000
		interest payable						270000
	1/1/2013	interest payable					270000
		cash						270000
	7/1/2013	interest expense					276000
		Discount on bonds payable						6000
		Cash						270000
	13/21/2014	interest expense					276000
		Discount on bonds payable						6000
		interest payable						270000
d)		Balance sheet presentation
		Long term liabilities
		Bonds payable					6,000,000
		Discount on bonds payable					216000	5,784,000