Question

On January 1,the first day of the fiscal year, Murray Company issues a $1,000,000, 5%, five-year bond, receiving cash of $947,560. The bond pays interest semiannually on June 30 and December 31, and is amortized semiannually suing the straight-lien method.

A. Journalize the issuance of the bond on January 1. (Note: Journal entry needs to show date)

B. Journalize the semiannual interest payments on the June 3 and December 31 of the first year. The bond discount amortization is combined with the semiannual interest payment.

C. Determine the carrying amount of the bond at the end of the first year.

Answer 1

Solution a:

Journal Entries - Murray Company
Date	Particulars	Debit	Credit
1-Jan	Cash Dr	$947,560.00
	Discount on issue of bond Dr	$52,440.00
	To Bond Payable		$1,000,000.00
	(To record issue of bond at discount)

Solution b:

Journal Entries - Murray Company
Date	Particulars	Debit	Credit
30-Jun	Interest expense Dr	$30,244.00
	To Discount on issue of bond		$5,244.00
	To Cash ($1,000,000*5%*6/12)		$25,000.00
	(To record interest expense and discount amortization)
31-Dec	Interest expense Dr	$30,244.00
	To Discount on issue of bond		$5,244.00
	To Cash		$25,000.00
	(To record interest expense and discount amortization)

Solution c:

carrying amount of the bond at the end of the first year = $947,560 + ($5,244*2) = $958,048