Question

E14-3 CRISIS Co. issued $500,000, 10 Year, 7% bonds on March 1, 2006, with interest paid twice a year on Aug 30 & Feb 28. The bonds sold for S434.948 yielding 9 % effective interest. CRISIS closes its books annually on Dec 31. Journalize the Bond Issue March 2006 Dr. Cr Journalize CRISIS's first interest payment made on Aug 30, 2006 Dr. Cr. Journalize the adjusting entry required on Dec 31 2006 Dec 31 2006 Dr. Cr. Journalize the second interest payment made on Feb 28 2007 Feb 28 2007 Dr. Cr.

Answer 1

Date	General Journal	Debit	Credit
March 1, 2006	Cash	$434,948
	Discount on Bonds Payable	$65,052
	Bonds Payable		$500,000
Aug 30, 2006	Interest Expense	$19,573		($434,948 x 9% x 1/2)
	Discount on Bonds Payable		$2,073	Balance
	Cash		$17,500	($500,000 x 7% x 1/2)
Dec 31, 2006	Interest Expense	$13,111		[($434,948 + 2,073) x 9% x 1/2 x 4/6]
	Discount on Bonds Payable		$1,444	Balance
	Interest Payable		$11,667	($500,000 x 7% x 1/2 x 4/6)
Feb 28, 2007	Interest Expense	$6,555		[($434,948 + $19,573) x 9% x 1/2 x 2/6]
	Interest Payable	$11,667
	Discount on Bonds Payable		$722	Balance
	Cash		$17,500	($500,000 x 7% x 1/2)