Question

Pretzelmania, Inc., issues 7%, 15-year bonds with a face amount of $51,000 for $46,591 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually on June 30 and December 31. Required: 1. & 2. Record the bond issue and first interest payment on June 30, 2021. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Round your intermed iate computations and final answers to the nearest whole dollar amount.) View transaction list Journal entry worksheet 1 2 Record the bond issue. Note: Enter debits before credits. Date General Journal Debit Credit January 01, 2021 Record entry Clear entry View general journal

Answer 1

Solution

Date	Account Title and Explanation	Debit	Credit
January 01	Cash	$ 46,591
	Discount on bonds payable	$ 4,409
	Bonds payable		$ 51,000
	(To record Issuance of bonds )
June 30	Bond interest expense	$ 1,864*
	Discount on bonds payable		$ 79
	Cash		$ 1,785
	(Interest on bond paid and Discount amortized)

*46591 x 4%

Alternate entry for interest assuming straight line method for amortization is used.

Date	Account Title and Explanation	Debit	Credit
June 30, 2021	Bond interest expense	$ 1,932
	Discount on bonds payable		$ 147
	Cash		$ 1,785
	(Interest on bond paid and Discount amortized)

.Working

Bond issue price (390000/100*102)	$ 46,591
Face value	$ 51,000
Discount on bonds payable	-$ 4,409
Number of Interest payments (15 years x 2)	30
Discount/ premium to be amortized per Half year	-$ 147
Cash Interest on bond (51000 x 3.5%)	$ 1,785
Interest expense to be recorded (1785+147)	$ 1,932