Question

Required information Exercise 9-8A Record bonds issued at a discount and related semiannual interest (LO9-5) The following information applies to the questions displayed below.) On January 1, 2021, Splash City issues $340,000 of 9% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 10%, the bonds will issue at $310,831..

Answer 1

Par value of bonds = $340,000

Cash receipts from issue of bonds = $310,831

Discount on bonds payable = Par value of bonds - Cash receipts from issue of bonds

= 340,000 - 310,831

= $29,169

Semiannual interest payment = Par value of bonds x Interest rate x 6/12

= 340,000 x 9% x 6/12

= $15,300

Semiannual amortization of bond discount = Discount on bonds payable/40

= 29,169/40

= $729

Journal

Date	Account Title and Explanation	Debit	Credit
Jan 1	Cash	310,831
	Discount on Bonds payable	29,169
	Bonds payable		340,000
	(To record issue of bonds of discount)
June 30	Interest expense	16,029
	Discount on bonds payable		729
	Cash		15,300
	(To record semiannual payment)

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