Question

Stephanie Ram Corporation have a $900,000 "bond issue" dated February 1, 2016 due in 10 years with an annual interest rate of 8%. Interest is payable February 1 and August 1. On April 1, 2016, the bond was sold for $846,900 plus accrued interest. Using the straight-line method, prepare the general journal entries for each of the following: a) The issuance of the bond on April 1, 2016. b) Payment of the semi-annual interest and the amortization of the discount on August 1, 2016. c) Accrual of the interest and the amortization of the discount on December 31, 2016. d) Payment of the semi-annual interest and the amortization of the discount on February 1, 2017.

Answer 1

Journal Entries Date Account Title and Explaination Debit Credit Post. Ref. a Apr.1 2016 $ $ 846,900.00 65,100.00 Cash Discount on Bonds Payable Bonds Payable Interest Payable ($900000x8%x2/12) (To record issue of Bonds at Discount) $ 900,000.00 12,000.00 $ $ 27,255.00 12,000.00 Aug.1 2016 Interest Expense Interest Payable Discount on Bonds Payable ($65100/10 Yrsx6/12) Cash ($900000x8%x6/12) (To record payment of interest on bonds) 3,255.00 36,000.00 $

32,712.50 Dec.31 2016 Interest Expense Discount on Bonds Payable ($65100/10yrsx5/12) Interest Payable ($900000x8%x5/12) (To record accrued interest along with proportionalte amortization of discount) 2,712.50 30,000.00 6,542.50 30,000.00 Feb.1 2017 Interest Expense Interest Payable Discount on Bonds Payable ($65100/10yrsx1/12) Cash ($900000x8%x6/12) (To record payment of semi annual interest) 542.50 36,000.00