Homework Answers
| (a) | Discount on issue of bonds=Face value-issue price=400000-372431.15=$ 27568.85 | ||||||||
| Under stright-line interest method, discount to be amortized equally over the life of bond | |||||||||
| The bonds make semi-annual interest payments. | |||||||||
| Maturity of the bond=11 years | |||||||||
| Number of semi-annual interest payments=11*2= 22 | |||||||||
| Discount to be amorized In a semi-annual interest period=27568.85/22=$ 1253.13 | |||||||||
| Date | Account title | Debit | Credit | ||||||
| 2019 | |||||||||
| June 30. | Interest expense | 17253.13 | |||||||
| Discount on bonds payable | 1253.13 | ||||||||
| Cash | (400000*8%*6/12) | 16000 | |||||||
| (Journal etry for interest) | |||||||||
| (b) | Bond issued on Jan 1,2019 | ||||||||
| Number of semi-annual periods till Jan 1, 2021=4 semi-annual payments | |||||||||
| Discount to be amortized for 4 semi-annual payments=4*1253.13=$ 5012.52 | |||||||||
| Balance of discount account=27568.85-5012.52=$ 22556.33 | |||||||||
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