Question

Cornerstone Exercise 9-32 (Algorithmic) Bonds Issued at a Discount (Effective Interest) Sicily Corporation issued $750,000 in 6% bonds (payable on December 31, 2029) on January 1, 2020, for $675,000. Interest is paid on June 30 and December 31. The market rate of interest is 10%. Required: Prepare the journal entries for December 31, 2020 and 2021. Round amounts to the nearest whole dollar. Dec. 31, 2020 Interest Expense Discount on Bonds Payable Cash 111 111 Dec. 31, 2021 Interest Expense Discount on Bonds Payable Cash

Answer 1

Answer:

Journal Entries

  In the Books of Sicily Corporation

Date	Account Description & Particulars	Debit ($)	Credit ($)
Dec 31, 2020	Interest Expense Account	26,250
	To Discount on bonds payable Account (750000-675000)/(10*2)		3,750
	To Cash Account (750000*6%*6/12)		22,500
	(Being semi-annual interest payment & discount amortization recorded
Dec 31, 2021	Interest Expense Account	26,250
	To Discount on bonds payable Account (750000-675000)/(10*2)		3,750
	To Cash Account (750000*6%*6/12)		22,500
	(Being semi- annual interest payment & discount amortization recorded)