Question

Required information [The following information applies to the questions displayed below.) Duval Co. issues four-year bonds with a $113,000 par value on January 1, 2019, at a price of $108,855. The annual contract rate is 6%, and interest is paid semiannually on June 30 and December 31. 2. Prepare journal entries to record the first two interest payments. (Round your answers to the nearest dollar amount.)

Answer 1

Face Value of Bonds = $113,000
Issue Value of Bonds = $108,855

Discount on Bonds Payable = Face Value of Bonds - Issue Value of Bonds
Discount on Bonds Payable = $113,000 - $108,855
Discount on Bonds Payable = $4,145

Annual Coupon Rate = 6.00%
Semiannual Coupon Rate = 3.00%
Semiannual Coupon = 3.00% * $113,000
Semiannual Coupon = $3,390

Time to Maturity = 4 years
Semiannual Period = 8

Semiannual Amortization of Discount = Discount on Bonds Payable / Semiannual Period
Semiannual Amortization of Discount = $4,145 / 8
Semiannual Amortization of Discount = $518

Semiannual Interest Expense = Semiannual Coupon + Semiannual Amortization of Discount
Semiannual Interest Expense = $3,390 + $518
Semiannual Interest Expense = $3,908

Debit Credit Date June 30 $ 3,908 General Journal Interest Expense Discount on Bonds Payable Cash Interest Expense Discount on Bonds Payable Cash 518 3,390 Dec. 31 3,908 518 3,390