[The following information applies to the questions
displayed below.]
Legacy issues $600,000 of 7.0%, four-year bonds dated January 1,
2019, that pay interest semiannually on June 30 and December 31.
They are issued at $541,807 when the market rate is 10%.
1. Prepare the January 1 journal entry to record the bonds' issuance.
Options for the General Journal
2. Determine the total bond interest expense to be recognized over the bonds' life.
3. Prepare a straight-line amortization table for the bonds' first two years.
4. Prepare the journal entries to record the first two interest payments.
2) Record the interest payment and amortization on December 31.
Options for the General Journal
Answer-1- Journal entry for issue of bonds
Date | General Journal | Debit ($) | Credit ($) |
Jan.01,2019 | Cash | 541,807 | |
Discount on bonds payable | 58,193 | ||
Bonds Payable | 600,000 | ||
(To record the issuance of bonds) |
2-
Total bond interest expense over life of bonds: | |
Amount repaid: | |
8 payments of $21000 ($600,000*7%*6/12) | 168000 |
Par value at maturity | 600000 |
Total repaid | 768000 |
Less amount borrowed | 541807 |
Total bond interest expense | 226193 |
3-Straight-Line amortization Table:-
Semiannual Interest PeriodEnd | Cash Interest Paid | Bond Interest Expense | Discount Amortization | Unamortized Discount | Carrying Value |
01/01/2019 | 58193 | 541807 | |||
06/30/2019 |
21000 ($600,000*7%*6/12) |
27090 ($541,807*10%*6/12) |
6090 ($27,090-$21,000) |
52103 ($58,193-6,090) |
547897 ($541,807+6,090) |
12/31/2019 |
21000 ($600,000*7%*6/12) |
27395 ($541,807+$6,090*10%*6/12) |
6395 ($27,395-$21,000) |
45708 ($52,103-$6,395) |
554292 ($547,897+$6,395) |
06/30/2020 |
21000 ($600,000*7%*6/12) |
27715 ($541,807+$6,090+$6,395*10%*6/12) |
6715 ($27,715-$21,000) |
38993 ($45,708-$6,715) |
561007 ($554,292+$6,715) |
12/31/2020 | 21000 | 28050 | 7050 | 31943 | 568057 |
4-Journal entries for first two payments:-
Date | General Journal | Debit ($) | Credit ($) |
June 30,2019 | Bonds interest expenses | 27,090 | |
Discount on bonds payable | 6,090 | ||
Cash | 21,000 | ||
(To record interest expenses) | |||
Dec.31,2019 | Bonds Interest expense | 27,395 | |
Discount on bonds payable | 6,395 | ||
Cash | 21,000 | ||
(To record interest expenses) |
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