Question

Hello, I am having trouble computing the amounts for the journal entries that are red. I am using a financial calculator, so I would prefer step by step instructions on how to get the correct answer using a calculator. Thank you!

The Novak Company issued $250,000 of 11% bonds on January 1, 2020. The bonds are due January 1, 2025, with interest payable each July 1 and January 1. The bonds were issued at 96. Prepare the journal entries for (a) January 1. (b) July 1, and (c) December 31. Assume The Novak Company records straight-line amortization semiannually. (if no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Date Account Titles and Explanation Debit Credit (a) Jan 1, 2020 Cash 240000 Discount on Bonds Payable 10000 Bonds Payable 250000 (b) July 1, 2020 | Interest Expense 14850 Discount on Bonds Payable 1100 Cash 13750 (c) Dec 31, 2020 Interest Expense 14850 Discount on Bonds Payable 1100 Interest Payable 13750

Answer 1

Under straight line amortization the discount amount is amortized equally each year depending on the maturity period of bond
In this case the bond is outstanding for 5 years and makes semi-annual payments and thus the number of coupon payment would be 10 (5*2)
Discount amortized each year	$1,000	10000/10
Thus, discount on bonds payable would be credited by $1,000
The interest expense is calculated as discount amortized plus coupon amount
Interest expense	13750+1000
Interest expense	$14,750
Thus, interest each semi-annual period would be debited by $14,750